THE IMPACT OF CASH FLOW MANAGEMENT TO INFORMATION DISCLOSURE IN FINANCIAL STATEMENTS OF LISTED FDI ENTERPRISES IN VIETNAM45400

THE IMPACT OF CASH FLOW MANAGEMENT TO INFORMATION DISCLOSURE IN FINANCIAL STATEMENTS OF LISTED FDI ENTERPRISES IN VIETNAM Thuy Nguyen Thi Hong, Phuong To Lan*,Tuyen Nguyen Thi Hai, Thu

THE IMPACT OF CASH FLOW MANAGEMENT TO INFORMATION DISCLOSURE IN FINANCIAL STATEMENTS OF LISTED FDI

ENTERPRISES IN VIETNAM

Thuy Nguyen Thi Hong, Phuong To Lan*,Tuyen Nguyen Thi Hai,

Thuong Dang Thi Hoai, Thuy Nguyen Thi

University of Economics and Business - VNU

ABSTRACT

Many businesses do not focus on cash flow management, leading to a decline in business results, which reduces the quality of information disclosure on financial statements In this research, a secondary data group of 80 FDI enterprises listed

in Vietnam in 2012-2018 to check the impact of inventories, liabilities, revenue, and liquidity on the information disclosure on financial statements The authors used a linear regression model and analysis to check the correlation between variables The results show that there is no significant relationship between revenue and the probability of fraudulent information disclosure on financial statements Moreover, the results also show a positive correlation between inventory, liquidity and probabilities of information disclosure From there, propose appropriate recommendations for financial administrators to improve the efficiency of cash flow management and the quality of information disclosure

on financial statements

Keywords: Cash flow management, information disclosure, quality of information

disclosure, the impact of cash flow management, FDI…

1 INTRODUCTION

Cash flow management is important in financial management, an important factor to create liquidity for businesses Liquidity helps businesses avoid unexpected cash flow shocks (Keynes J M, 1937) The majority of previous studies focused on factors that affect information disclosure, the extent of voluntary disclosure and the researchers' conclusions show that factors influence information disclosure and the level of voluntary disclosure is due to the characteristics of corporate governance such as

* Corresponding author

Email address: phuong.tolan@gmail.com

ownership structure, corporate governance, size and composition of the board of directors, etc Meanwhile, the influence of factors cash flow management has not been noticed yet In 2013, the Inspectorate of the General Department of Taxation for the first time announced the results of the specialized inspection on transfer pricing of the tax industry, which was really "shocking" as hundreds of FDI enterprises across the country continuously reported losses and evaded taxes with the amount

of arrears collected, up to trillions of dong The situation of rising prices of goods and input materials is high, lowering export prices to lower so that the loss or reduction

of profits on books (transfer pricing) to avoid tax payment is happening in some FDI enterprises in Vietnam On the other hand, in 2016-2017, there were many problems with the financial statements of FDI enterprises listed in Vietnam reflected

by the enterprises inflating revenue and profits During this period, the assets on the financial statements of many listed FDI enterprises increased sharply while this did not exist in reality, but only in trading After the event of Truong Thanh Wood Joint Stock Company (stock code TTF) occurred in February 2016, with the value of more than 1,000 billion VND of inventory disappeared on the financial statements, many other listed companies have also detected financial problems When the incident was broken, stock prices plunged without braking, many investors suffered big losses, leading to the belief that transparency in the market was seriously affected Inadequate money flow management causes high debt ratios, low liquidity, etc to put pressure on managers, in particular, financial pressure is one of the reasons leading

to fraudulent actions (Donald R Cressey, 1919-1987) According to (Loebbecke JK

et al., 1989), low financial conditions may motivate some managers to find ways

to improve the financial position of businesses to consolidate their position and income On the other hand, many researchers such as (Vanasco, 1998), (Persons, O., 1995), (Schilit, 1993) and (Stice, 1991) have also stated that managers can perform behaviours fraud by adjusting the items in cash flow management to reduce profits, reduce the tax payable, and reduce the burden of profit targets for the following years Therefore, it is necessary and meaningful for the financial managers to disclose information on the financial statements of FDI enterprises listed in Vietnam It is aimed at promoting positive impacts and minimizing the negative impacts of FDI enterprises with the goal of sustainable economic development in Vietnam

2 LITERATURE REVIEW

Researches on cash flow management

(Sher Khan, Zhuangzhuang Peng, Sohail Ahmad, Shahid Mahmood, Ijaz Ahmad, 2019) investigated the impact of business structure (whether diversified or concentrated companies) on the company's cash holdings using the random-effects model and descriptive statistics are used to analyze the variables The results of these models show that there is a negative and significant impact of the business structure on firm's holding of cash, leverage and capital, of opportunities for growth and holding of cash Descriptive statistics show a significant difference between the cash holdings of diverse and centralized companies Diverse companies hold a smaller amount of cash than single-segment companies (centralized companies), supporting the theory of trade-offs

(M Subramanyam, Himachalam Dasaraju, 2014) used a survey of 6 information technology companies with Standard & Poor's scorecard to evaluate corporate governance practises as a benchmark Sample information technology companies such as Infosys, Wipro, TCS and HCL scored well, i.e more than 100 and Tech Mahindra and Mphocation scored low, i.e less than 96 in corporate governance practice Disclosure of administrative information increases performance A country's government environment, especially its legal and market infrastructure, the organizational structure greatly influences the disclosure rate of companies, thereby increasing profits For policymakers and practitioners, the results suggest that corporate governance is monitored Good legislation and a corrupt market environment are essential for effective corporate governance disclosure

Research on disclosing information in financial statements

Information disclosure

According to the representation theory that delegates some decision-making authority to the representative (Jensen and Meckling, 1976), the reason for creating this theory is that the managers and authorized representatives do not always manage

it also act on the best interests of the principal Conflicts of interest will increase when there is insufficient information, or due to information asymmetry between the owner and the representative of the business To minimize this conflict, one of the effective measures is to ensure the quality of information disclosure on the scale, financial leverage, profitability, management structure, etc are directly related to agency costs Representation costs depend on the size of the business (Rodriguez Perez, 2004) The higher the debt ratio is, the higher the agency cost Enterprises using higher leverage will have more obligations in terms of information disclosure This increased disclosure obligation serves the needs of short-term and long-term creditors Furthermore, the disclosures need to be more detailed to help creditors make decisions related to corporate debt (Garcia - Meca at al, 2005) The higher the profitability, the higher the level of information disclosure To achieve this, managers need to demonstrate management's performance by disclosing more detailed and complete information (Giner, 1997) Listed businesses will provide more information than unlisted businesses This is explained by the fact that the requirements on the stock markets are often tighter and more detailed so listed companies often have to publish better information (Giner, 1995)

By the theory of market signalling, asymmetric information between businesses and investors causes adverse selection costs for investors To reduce the cost of adverse selection, voluntary disclosure must be more detailed and sufficient to give signals to the market (Watts and Zimmerman, 1986) Listed businesses need to increase the level of full disclosure of information as prescribed, accurate and timely The Government needs to supplement the disclosure policy, including the missing information such as research and development costs, and the uniform disclosure structure of shareholder ownership Specialized regulatory bodies need to regularly monitor both directly and indirectly for fair and transparent transactions in the market (Nguyen Trong Hoai and Le Anh Khang, 2008) Information asymmetry in businesses with larger scale is increasing Therefore, the more information is published, the

less the information asymmetry will be reduced (Rodriguez, 2003) According to this theory, firms with high profitability tend to signal better by publishing more information to increase investor confidence (Singhvi and Desai, 1971)

The cost of ownership theory says that more competition makes businesses more cautious in disclosing information The higher the level of information disclosure, the more disadvantageous it is for enterprises to hold their advantages (Newman and Sansing (1993) competition although this will cause businesses to raise capital mobilizing costs (Verreccchia, 2011)

Besides, the profitability theory associated with the level of information disclosure by El-Gazzar and Fornaro in 2003 argues that higher profits will help positively improve information disclosure

(Nguyen Huu Cuong, 2015) provided quantitative evidence as a basis for assessing the shortcomings in disclosing information on the interim financial statements of listed companies in Vietnam on the Stock Exchange in Hanoi and Ho Chi Minh Besides, for the evaluation to be more objective and more feasible for proposing solutions, the weaknesses in information disclosure are compared with the actual disclosure of listed companies in Bursa Malaysia Stock Exchange and Philippines Stock Exchange The analysis of the content of the semi-annual financial statements shows that the weaknesses are concentrated in 7 main items: Seasonality/cycle, accounting policies, diluted profits above one stock, the announcement of compliance with accounting standards, dividend announcements, department reporting information, events after the reporting date Compared with Malaysia and the Philippines, the compliance level

of listed companies in Vietnam is the worst, and especially for the second quarter financial statements Compliance is better for the semi-annual financial statements but still far behind Malaysia and the Philippines Improving compliance not only depends

on the disclosure agencies but also the agency that issues the disclosure policy

(Fengfang Li, 2015) based on China's institutional background, analyzed the issues

of publicizing the accounting information of listed companies on the NEEQ market, drawing lessons from overseas markets and Make relevant policy recommendations The three reasons given by the author are: NEEQ's accounting information disclosure rule issued by the State Council and China Securities Regulatory Commission is ambiguous, the issue of corporate governance is not perfect of listed companies, scarce external resources to carry out monitoring work

(Nguyen Huu Cuong, 2015) provided quantitative evidence as a basis for assessing the shortcomings in disclosing information on the interim financial statements of listed companies in Vietnam on the Stock Exchange in Hanoi and Ho Chi Minh Besides, for the evaluation to be more objective and more feasible for proposing solutions, the weaknesses in information disclosure are compared with the actual disclosure of listed companies in Bursa Malaysia Stock Exchange and Philippines Stock Exchange The analysis of the content of the semi-annual financial statements shows that the weaknesses are concentrated in 7 main items: Seasonality/cycle, accounting policies, diluted profits above one stock, the announcement of compliance with accounting standards, dividend announcements, department reporting information, events after

the reporting date Compared with Malaysia and the Philippines, the compliance level

of listed companies in Vietnam is the worst, and especially for the second quarter financial statements Compliance is better for the semi-annual financial statements but still far behind Malaysia and the Philippines Improving compliance not only depends on the disclosure agencies but also the agency that issues the disclosure policy

Vo Minh Duong (2016) researches the signs of data distortion that reduces the quality of financial statements of companies in Vietnam through the Beineish M-Score model, while also exploring the relationship between distortion Financial reports and stock returns on the stock market The results showed that about 30% of companies listed in HOSE and HNX showed signs of distorting financial statements and there was no difference in the distortion of financial statements between the two floor The model the author has used: Depreciation, selling expenses and arbitrary accumulation of accounting policies can reduce the likelihood of detecting financial fraud Signs of increased revenue and profit, the suspension of the cost of assets,

as well as the debt to creditors cannot be used to detect financial fraud The results

of the project can be used as a reference measure for investors, credit providers to assess the transparency of the company, and adding a supporting tool Invest in the stock market

Models have been launched for the study of fraud disclosures in financial statements

Nooraslinda et al (2013) used the Beneish Model focusing on the application of ratio analysis by using at least two sets of accounting records There are two Benford and Beneish Law model techniques that will allow users of accounting data to assist auditors and investigators in finding anomalies that can be turned into scams

By adopting appropriate techniques, the accuracy of financial statements can be strengthened and maintained reputation

Tarjo et al (2015) point out: Gross profit, depreciation, selling expenses, overheads, administration and cumulative totals for total assets can be used to detect financial fraud The turnover index, asset quality and leverage index cannot detect financial fraud The accuracy of the model used in this study is only 77.1% Indicators of revenue and profit, the cost of assets, as well as the debt to creditors are not used

to detect financial fraud Depreciation, selling expenses and accounting policies may reduce the accuracy of the model

Rasa et al (2015) analyzed financial ratios to identify a set of sensitive criteria for financial executives' financial fraud Theoretical analysis shows that profitability, liquidity and ownership ratio are the most influential A logistic regression model has been developed to predict the likelihood of financial reporting fraud based

on financial ratios The model is designed for investors when making investment decisions and business evaluation The accuracy of this model is about 84.9% Daniel et al (2015) demonstrate that business development opportunities, ineffective monitoring activities, and rational variables for auditors do not affect the likelihood

of fraud finance while changing executive authority will bring a high likelihood of fraudulent financial statements

Shabnam et al (2016) compared the fraud detection capabilities of Beneish and Dechow models This study addresses the concerns of the public and policymakers

by identifying an appropriate model related to financial reporting fraud The authors examined the appropriateness of Beneish M-points and Dechow F-points and the relevance of cases of financial fraud from annual reports of businesses in Malaysia The results show that the Dechow model's ability to detect fraud is higher than the Beneish model with a predicted probability of 73.17% and 69.51%, respectively Type

II errors are also reported in the Dechow model which is lower than the Beneish model Therefore, it may be concluded that the Dechow model is more suitable in Malaysia The limitation of this study is the use of fraud detection models with limited financial data Therefore, non-financial data that plays an important role in fraud detection is ignored Future studies are proposed to compare financial models with other fraud models including financial and non-financial variables such as fraudulent triangle model or diamond fraud model Besides, future studies may examine the performance of these models among ASEAN countries

Ofori and Edmond (2016) used modified AltmanZ-Score and Beneish M-Score to detect corporate financial fraud The Z-Score results are calculated from Enron, the annual report showing early bankruptcy signs in 1997 The values of Z-Score in 1998,

2000 and 2001 all show signs of bankruptcy in Enron Corp The results of M-Score also show that Enron Corp started manipulating its income in 1998 This shows that financial analysts can save investors from losing money to Enron Corp when Z- Score revealed M-Score that had a default sign in 1997 and manipulated income in 1998 The two models are influenced by the definition of the data used in performing financial analysis Therefore, these two models can generate different values for some of the data used to calculate ratios This can lead to different predictions of the company's default risks and money manipulation The financial ratios developed

by Edward I Altman and Messod Beneish are not sufficient to detect financial fraud and income manipulation done by businesses Further research on the detection

of financial fraud and income manipulation should include an analysis of the cash flow statements of businesses as it provides an income quality test presented in the income statement

Jaber et al (2017) used an integration method based on the factor analysis model and artificial neural network method in businesses listed on Tehran stock exchange

to develop the development model fraud In this study, the performance of the estimated neural network model was compared to the logistic regression method to examine the accuracy of the neural network According to logistic regression, 5 of the most important financial ratios in predicting fraud in businesses are (1) Net profit for fixed assets; (2) Gross profit on assets; (3) Property debt; (4) Altman Z and (5) Fixed assets on assets

The results also show that the artificial neural network method is more efficient: The accuracy of the classification of fraud and non-fraud enterprises and the overall performance is 57.69%, 72.73% and 62.16% The accuracy in classifying fraudulent, non-fraud firms and the overall performance of logistic regression methods are 54.55%, 50% and 54.05%, respectively, are relatively low

Pham Hoai Huong and Le Xuan Lam (2014) stated that the ratio was created for

use in calculating the risk of profit manipulation and Beneish in its research that any manipulation any financial statements are done through an increase in income However, the accuracy of fraud detection using M-score in this study is very low, only about 50%

Vo Minh Duong (2016) researches the signs of data distortion that reduces the quality of financial statements of companies in Vietnam through the Beineish M-Score model, while also exploring the relationship between distortion financial reports and stock returns on the stock market The results showed that about 30% of companies listed on HOSE and HNX showed signs of distorting financial statements and there was no difference in the distortion of financial statements between the two floor The model the author has used: Depreciation, selling expenses and arbitrary accumulation of accounting policies can reduce the likelihood of detecting financial fraud Signs of increased revenue and profit, the suspension of the cost of assets,

as well as the debt to creditors cannot be used to detect financial fraud The results

of the project can be used as a reference measure for investors, credit providers to assess the transparency of the company and add a supporting tool to invest in the stock market

Tran Thi Kim Anh and Nguyen Thi Phuong Mai (2017) used the M-score model - The model is widely used to detect fraudulent financial statements This model does not directly assess the level of profit management of an enterprise but only the red flag model of the phenomenon of profit management in businesses However, using M-score has the potential to lead to errors such as Misclassifying a company with profit management to none or misclassifying a business without profit management Therefore, a value threshold for classification should be set to minimize losses due

to misclassification

Nguyen Huu Cuong and Le Thi Bao Ngoc (2018) have pointed out that there are

6 factors that can affect the timeliness of financial statements including size of firm, type of auditing firm, change of profit, type of financial statements, type of audit opinion, business sector to businesses listed on HNX and HOSE in the period

of 2012-2016 But this research is only limited to building models with qualitative methods that have not used quantitative methods to check the reliability of qualitative methods

3 METHOD OF RESEARCH

Hypotheses research

Based on the relevant theories with previous research results, combined with expert opinion after in-depth interviews, this research proposes the following hypotheses to build models to identify The impact of cash flow management on the disclosure of information on financial statements of businesses listed on Vietnam's stock market

Theory of inventory

Inventory accounts also depend on estimates of inventory price decrease reserves Therefore, these accounts are often used by administrators in their fraudulent practices (Summer S.L, Sweeney J.T, 1998) (Loebbecke JK et al., 1989) found

that inventory and receivables account for 22% and 14% of fraudulent behaviours, respectively, in the sample Many researchers (Vanasco, 1998), Persons (1995), (Schilit, 1993) and (Stice, 1991) have also reported that managers may cheat on inventory items Another form of fraud is to report a value of inventories below their cost or net realizable value Enterprises may choose not to record the correct quantities of obsolete inventories

For businesses with large profits: most of these businesses tend to underestimate the value of inventory left on the Balance Sheet, which means that because businesses are profitable, they will push many costs into business results as much as possible The reason is that the profit reduction will lead to a reduction in the payable tax amount and a reduction of the profit target burden for the following years Besides, these enterprises always tend to make provision for the devaluation of inventory much to reduce profit

H1: "The higher the ratio of inventory to total assets, the higher the level of fraud in disclosing information in the financial statements"

Hypotheses of total liabilities

A high debt ratio can increase the likelihood of financial statements fraud because

it converts risks from owners and management to creditors (Chow C W., Rice S

J, 1982) Besides, a high debt ratio can put high liquidity pressure on managers, namely financial pressure as one of the drivers of fraudulent acts (Donald R Cressey, 1919-1987)

This results in a higher debt ratio that can increase the likelihood of financial statements fraud

H2: "The higher the liability of an enterprise, the greater the probability of fraud on the financial statements"

Hypotheses of revenue

Some indicators such as revenue accounts receivable on financial statements are also likely to be fraudulent Studies of (Schilit, 1993), (Stice, 1991), (Persons, O., 1995) and (Feroz et al., 1991) conclude that managers can cheat accounts receivable Through the declaration of revenue These enterprises may not record revenue at the same time with the cost of goods sold, leading to an increase in gross profit, net profit and making the balance sheet "beautiful"

H3: "The turnover of an enterprise and the probability of fraudulently disclosing information in its financial statements are directly proportional to each other"

The hypothesis of cash / short-term debt ratio

Cash / Short-term debt is a financial measure representing the liquidity of the business The lower the liquidity of an enterprise, the greater the incentive to cheat its financial statements According to Loebbecke et al (1989), low financial conditions may motivate some managers to seek to improve the financial position of firms to strengthen their position and income The study also found that 19% of fraudulent companies in the sample were faced with payment issues

H4: "The higher the ratio of cash/short-term debt on the financial statements, the higher the probability of fraudulently disclosing information in the financial statements"

4 RESEARCH DESIGN

Research models

From the overview of relevant studies already in the world and in Vietnam combined with the results of in-depth interviews with expert opinion, the author has inherited the model in the study "The Model of Fraud Detection in Financial Statements by Means

of Financial Ratios "of Rasa Kanapickiene and his colleagues built for Malaysia market (quite similar to Vietnam market) to assess the impact of cash flow management factors on the disclosure of the above information on financial statements

4 hypotheses the author has built and verified through the following model:

With:

P: Probability of fraud in financial statements (from 0 to 1);

β0: Free coefficient;

β1, β2, β3, β4: Coefficient of explanatory variables;

INV/TA: Inventory/Total assets;

S/FA: Revenue/Fixed assets;

TL/TA: Total liabilities/Total assets;

C/CL: Cash/Short-term debt

Research sample

FDI enterprises have contributed significantly to the economic growth of the region and the country, playing many important roles in forming and operating new economic models and directions However, the FDI sector is showing concerns and negative effects on the current economy such as tax evasion, transfer of prices, fake losses, real profits The most common is probably the transfer phenomenon price In many very sophisticated ways, many FDI enterprises raise input costs from a branch

of their group abroad, they report constant losses, causing great losses for the state, creating competition unhealthy with domestic businesses

Therefore, the survey sample of this study includes information published on the financial statements of 80 FDI enterprises listed on Vietnam's stock market from

2012 to 2018 The sample size study conducted by Roger (2006) shows that the minimum sample size applicable to practical studies is from 150-200 So, the sample size of 470 satisfies the model requirements

5 RESEARCH RESULTS AND DISCUSSION

The estimation model results show that inventory, liabilities and liquidity all affect the probability of fraudulently disclosing information in the financial statements

1 + 𝑒𝑒&' ) &* + ,-./0 ) &1 + 230 ) &4 + /5/0 ) &6 + 775

while revenue has a negligible influence (no statistically significant, p> 0.05) thus eliminating the hypothesis H_3 When adjusting the model by keeping only these

3 independent variables, the results also confirmed that there is no autocorrelation phenomenon (Durbin-Watson coefficient = 2.2116), no multi-collinear phenomena and the Statistically significant effects of 3 factors: Inventory/Total assets (β = 0.7435,

p < 0.05), Total liabilities/Total assets (β = 0.7838, p <0.05) and Cash/Short-term debt (β = 0.2373, p <0.05) to the probability of fraudulently disclosing information

in the financial statements

Inventory / Total Assets positively affects the probability of fraudulently disclosing information in the financial statements thus accepting the H1 hypothesis Businesses with large inventories are more likely to show fraudulent actions when they disclose information This result is consistent with previous studies (Vanasco, 1998), Persons (1995), (Schilit, 1993) and (Stice, 1991)

The ratio of Total Liabilities / Total Assets positively affects the probability of fraudulently disclosing information in the Financial Statements thus accepting the H2 hypothesis The higher the ratio of liabilities / total assets of an enterprise, the more fraudulent the firm will be when publishing information on its financial statements This result is consistent with the studies of Chow C W and Rice S J (1982), Donald

R Cressey (1919-1987)

Similarly, Cash / Short-term debt positively affects the probability of fraudulently disclosing information in the financial statements thus accepting the hypothesis H4 This result is consistent with the study of Loebbecke et al (1989) And this is also the most significant variable affecting the probability of fraudulent disclosure

of information in the financial statements at the 5% significance level because the value of T-statistic = 37,7677 is the highest

6 CONCLUSIONS, RECOMMENDATIONS AND SOLUTIONS

In-depth interview

The interview was conducted by face-to-face meetings at the interviewees' offices

or by telephone, the email with 20 experts with more than 5 years of experience in accounting financial audit Each interview lasts 30 minutes The author uses closed and open questions to exploit research information The recording is only done with the consent of the interviewee

In-depth interviews showed that 100% of experts said that cash flow management has a strong impact on information disclosure on the financial statements through 3 groups of factors: Group of asset factors (Cash, Inventories warehouse, fixed assets, total assets); Debt factor group (Short-term debt, Total liabilities); and revenue factor