Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.

Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.

MINISTRY OF EDUCATION AND TRAINING

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

MINISTRY OF EDUCATION AND TRAINING

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

A DOCTORAL THESIS

Supervisors:

1 Prof, Dr Vo, Xuan Vinh

2 Prof Jonathan A, Batten

Ho Chi Minh City, 2023

STATEMENT OF AUTHENTICATION

I hereby declare that this thesis was carried out by myself under the guidance of supervisors The data and figures presented in this thesis are honest The results of the thesis have not previously been published in any other research

Vo Thi Thuc

ACKNOWLEDGMENT

Firstly, I would like to express deeply respect and gratitude to my two supervisors, Professor Vo Xuan Vinh and Professor Jonathan A Batten for their support and guidance I sincerely thank Prof Vo Xuan Vinh for creating conditions for me to learn research methods and skills from the first days I would like to thank Prof Vo Xuan Vinh for always accompanying, encouraging and supporting me to overcome the most difficult period in the process of implementing the thesis I sincerely thanks Prof Johnathan Batten for his comments and support me the references so that I can complete the thesis

I would like to thank the University of Economics Ho Chi Minh City, and the School of Accounting at University of Economics Ho Chi Minh City imparting knowledge during the study process and providing valuable comments during the thesis so that I can complete this thesis

I would like to express sincere thanks to the leadership and the colleagues of the Faculty of Accounting, Ton Duc Thang University, for motivating and encouraging

me to complete the PhD program

Finally, I would like to express my deep gratitude to my family, my mother, especially my husband and daughter, who have always listened, understood and shared everything so that I can focus on completing this thesis

Vo Thi Thuc

TABLE OF CONTENTS

ABBREVIATIONS ix

LIST OF TABLES x

LIST OF FIGURES xii

ABSTRACT xiii

INTRODUCTION 1

1 Motivation for research 1

2 Research objective 4

3 Research questions 5

4 Methodology 5

5 Research subjects and research scope 5

6 Contribution of the thesis 7

7 Thesis structure 10

CHAPTER 1: LITERATURE REVIEW 11

1.1 Research concepts 11

1.1.1 Accounting conservatism 11

1.1.2 Ownership structure 13

1.1.2.1 Ownership concentration 13

1.1.2.2 Ownership structure types 13

1.1.3 Firm performance 14

1.2 Summary methods on the measurement of accounting conservatism 15

1.2.1 Balance sheet measures 15

1.2.1.1 Book-to-market ratio 15

1.2.1.2 Bias component 15

1.2.2 Income statement measures 16

1.2.2.1 Accrual-based measures 16

1.2.2.2 Cash-flow-based measures 18

1.2.2.3 Basu’s PEC model 18

1.2.3 Earnings/stock return relation measures 19

1.2.3.1 Basu’s asymmetric timeliness model 19

1.2.3.2 Khan and Watts’ (2009) model 20

1.3 Research on the relationship between ownership structure and accounting conservatism 22

1.3.1 Ownership concentration and accounting conservatism 22

1.3.2 Ownership types and accounting conservatism 23

1.3.2.1 Managerial ownership and accounting conservatism 23

1.3.2.2 Institutional ownership and accounting conservatism 24

1.3.2.3 Foreign ownership and accounting conservatism 26

1.3.2.4 State ownership and accounting conservatism 27

1.4 Research on the relationship between accounting conservatism and firm performance 28

1.5 Research gaps 31

CONCLUSION OF CHAPTER 1 33

CHAPTER 2: CONCEPTUAL FRAMEWORK AND HYPOTHESES 34

2.1 Theoretical framework 34

2.1.1 The agency theory 34

2.1.2 Political cost theory 35

2.1.3 The signaling theory 36

2.1.4 The positive accounting theory 37

2.2 Hypotheses and conceptual framework 38

2.2.1 Hypotheses development 38

2.2.1.1 The relationship between ownership concentration and accounting conservatism 38

2.2.1.2 The relationship between managerial ownership and accounting conservatism 39

2.2.1.3 The relationship between institutional ownership and accounting conservatism 40

2.2.1.4 The relationship between foreign ownership and accounting conservatism

41

2.2.1.5 The relationship between state ownership and accounting conservatism42 2.2.1.6 The relationship between accounting conservatism and firm performance 42

2.2.1.7 Other factors that do not belong to the ownership structure which affect to accounting conservatism 43

2.2.2 Conceptual framework 45

CONCLUSION OF CHAPTER 2 47

CHAPTER 3: RESEARCH METHODOLOGY 48

3.1 Research method and research process 48

3.1.1 Research method 48

3.1.2 Research process 48

3.2 Regression model 50

3.2.1 Model to analyze the feature of accounting conservatism in Vietnamese listed firms 50

3.2.2 Model to investigate the effect of ownership structure on accounting conservatism 51

3.2.3 Model to investigate the effect of accounting conservatism on firm performance 53

3.3 Measurement variables 54

3.3.1 Accounting conservatism 54

3.3.2 Ownership structures 59

3.3.2.1 Ownership concentration 59

3.3.2.2 Ownership types 59

3.3.3 Firm performance 61

3.3.4 Control variables 62

3.4 Research design 63

3.4.1 Sample and data collection methods 63

3.4.2 Data analysis 66

3.4.2.1 Panel data analysis 66

3.4.2.2 Selecting the best regression equation 66

3.4.2.3 Diagnostic Tests 67

3.4.2.4 Remedying defects with FGLS 68

CONCLUSION OF CHAPTER 3 69

CHAPTER 4: RESULTS AND DISCUSSION 70

4.1 Accounting conservatism of listed firms on the Vietnamese stock market 70 4.1.1 The feature of accounting conservatism in Vietnamese listed firms 70

4.1.2 Measuring level of accounting conservatism 71

4.1.2.1 The level of accounting conservatism measured by asymmetric timeliness score according to Khan and Watts (2009) 72

4.1.2.2 The level of accounting conservatism measured by accumulated accruals according to Ahmed and Duellman (2007) 73

4.2 Descriptive Statistics 74

4.2.1 Group of factor variables related to ownership structure 74

4.2.2 Group of factor variables related to firm performance 74

4.2.3 Group of factor variables related to firm characteristics 74

4.3 Correlation and regression statistics 75

4.3.1 Correlation analysis 75

4.3.2 Multivariate analysis 77

4.3.2.1 Ownership structure and accounting conservatism measured follow to Khan and Watts (2009) 77

4.3.2.2 Ownership structure and accounting conservatism measured follow to Ahmed and Duellman (2007) 82

4.3.2.3 Accounting conservatism and firm performance (Accounting conservatism measured follow to Khan and Watts (2009)) 87

4.3.2.4 Accounting conservatism and firm performance (Accounting conservatism measured follow to Ahmed and Duellman (2007)) 91

4.4 Summarize the results of the regression analysis and discuss the results 95

4.4.1 Relationship between ownership structure and accounting conservatism 98 4.4.2 Relationship between accounting conservatism and firm performance 101

4.4.3 Control variables and conservatism 102

CONCLUSION OF CHAPTER 4 104

CHAPTER 5: CONCLUSION AND RECOMMENDATION 105

5.1 Summary of findings 105

5.1.1 The relationship between ownership structure and accounting conservatism 106

5.1.2 The relationship between accounting conservatism and firm performance

108

5.2 Proposing a number of recommendations related to the adopting of accounting conservatism principle of companies listed on the Vietnamese stock market 109

5.2.1 For policy makers 109

5.2.2 For listed firms 111

5.2.3 For users of financial statements 112

5.3 The significance of research 113

5.4 Limitations of this thesis and Future research 115

CONCLUSION OF CHAPTER 5 116

CONCLUSION 117

LIST OF PAPERS 119

REFERENCE 120

C_SCORE Asymmetric timeliness score

CONS Accounting conservatism

FGLS Feasible Generalized Least Squares estimators

IFRS International Financial Reporting Standards

HOSE Ho Chi Minh City Stock Exchange

LIQ Liquidity of stocks

NAICS North American Industry Classification System

PEC Persistence of Earnings Changes

SCC State Securities Commission

VIF Variance inflation factor

LIST OF TABLES

Table 2.1 Research hypothesis and relationships with relevant underlying theories

45

Table 3.1:Summary of the measures of ownership structure variables 60

Table 3.2.Summary of the measures of firm performance 62

Table 3.3 Summary of the measures of control variables 63

Table 3.4: The sample of research 65

Table 4.1: Multiple linear regressions for Basu (1997) model 71

Table 4.2: The level of accounting conservatism measured through the firm-specific asymmetric timeliness score (C_SCORE) 72

Table 4.3: The level of accounting conservatism measured through accumulated accruals (CONS_ACC) 73

Table 4.4: Descriptive Statistics 75

Table 4.5: Pearson (Spearman) Correlations 76

Table 4.6: Results of F – test; Breusch – Pagan test; Hausman test 78

Table 4.7: Results of Breusch-Pagan test 79

Table 4.8: Results of Wooldridge test 79

Table 4.9 : Results of testing for multicollinearity 80

Table 4.10: Results of regression of ownership structure and accounting conservatism measured by asymmetric timeliness score (C_SCORE) 81

Table 4.11: Results of F – test; Breusch – Pagan test; Hausman test 83

Table 4.12: Results of Wald test 84

Table 4.13: Results of Wooldridge test 84

Table 4.14: Results of testing for multi-collinearity 85

Table 4.15: Results of regression of ownership structure and accounting conservatism measured by accrual 86

Table 4.16: Results of F – test; Breusch – Pagan test; Hausman test 88

Table 4.17: Results of Wald test 89

Table 4.18: Results of Wooldridge test 89

Table 4.19: Results of testing for multi-collinearity 90

Table 4.20: Results of regression of accounting conservatism measured by asymmetric timeliness score (C_SCORE) and firm performance 91

Table 4.21: Results of F – test; Breusch – Pagan test; Hausman test 92

Table 4.22: Results of Wald test 93

Table 4.23: Results of Wooldridge test 93

Table 4.24: Results of testing for multi-collinearity 94

Table 4.25: Results of the level of accounting conservatism measured by accruals (CONS_ACC) and firm performance 95

Table 4.26: Results of regression coefficient estimation in the model 2,3 96

Table 4.27: Results of regression coefficient estimation in the model 4,5 97

Table 4.28: Summarize the results of hypothesis testing relationship between ownership structure and accounting conservatism 97

Table 4.29: Summarize the results of hypothesis testing relationship between accounting conservatism and firm performance 98

LIST OF FIGURES

ABSTRACT

The goals of this thesis are to investigate the influence of ownership structure on accounting conservatism and the benefits of accounting conservatism on firm performance in Vietnam context The literature review shows that ownership structure has an effect on accounting conservatism and accounting conservatism also has a positive effect on the firm performance in countries around the world, however, the findings have not been consistent In addition, there are a few studies that provide evidence on the relationship between ownership structure and accounting conservatism, especially ownership concentration, institutional ownership in the Vietnam context Regarding the impact of accounting conservatism on the firm performance, there are limited studies on this issue until the time the thesis conducts the research in the Vietnam context

The research sample was selected from non-financial companies listed on the Ho Chi Minh City Stock Exchange in the period from 2012 to 2020 Data were collected from consolidated financial statements, annual reports, market prices and volume of trade are collected from the Ho Chi Minh City Stock Exchange The panel data methodology is used to test the developed hypotheses

The thesis uses three popular methods to measure accounting conservatism: asymmetric timeliness (Basu, 1997), asymmetric timeliness score developed by Khan and Watts (2009) and accrual-based method developed by Ahmed and Duellman (2007) Accounting-based measures (Return on assets, return on equity), and market-based measure (Tobin's Q, Stock liquidity) are adopted in this study to measure the firm performance For ownership structure variable, it is classified into ownership concentration and ownership type Ownership type consists of managerial ownership, institutional ownership, foreign ownership and state ownership

In respect of the effect of ownership structure on conservatism, the results display

as expected In particularly, higher institutional ownership, foreign ownership, state ownership leads to more conservatism; however, higher managerial ownership, ownership concentration leads to lower conservatism Additionally, companies

adopted more accounting conservatism principle are shown that the firm performance have better

The findings of this study contribute to the literature of ownership structure and accounting conservatism in the context of frontier market in Vietnam This study also gives some useful implications for policymakers, practice of accounting, researchers, and users of accounting information in financial statements in Vietnam context

Keywords: Accounting conservatism; Ownership structure; A frontier market; Firm performance

INTRODUCTION

1 Motivation for research

Accounting conservatism is an age-old and common feature of financial accounting (Biddle et al., 2022) There are different definitions of accounting conservatism Basu (1997) defines accounting conservatism as an accounting principle that tends to require higher recognition of good news than bad news when preparing financial statements Givoly and Hayn (2000) argue that applying the principle of accounting conservatism, the result is that expenses are recognized faster than revenue Watts (2003) defines conservatism as the asymmetric timeliness in recognizing loss versus gain And, some documents suggest that the application of conservatism can help limit the opportunistic behavior of the company's management, thereby improving the reliability of the financial statements of the reporting entities (Ball and Shivakumar, 2005; Watts, 2003; Mora and Walker 2015) The optimal degree of accounting conservatism improves the quality of decisions making for financial market participants Watts (2003) argues that regulations will greatly affect the adopting of accounting conservatism and the object who will have benefit from statements prepared under accounting conservatism are the users of financial report Therefore, accounting conservatism is required to apply in preparing financial statements

Ownership structure is formed from the nature of shareholders and respective shares It represents ownership agreements and is the basis in determining a company's control structure, the foundation of the governance of company For listed companies, Watts (1993) states that accounting conservatism is affected by a variety

of governance factors Therefore, the effect of ownership structure on the level of accounting conservatism will be essential for management, investors and others using the accounting information to have a full basis for consideration, assessment and correct decision-making In addition, policymakers will also need the results of this relation to have requirements that improve to adopt accounting conservatism principle in the preparation of financial statements There are several studies

exploring the relationship between ownership structure and accounting conservatism

in developed countries (Ahmed and Duellman, 2007; Ahmed and Henry, 2012; Ramalingegowda and Yu, 2012) and in developing countries (Liu, 2019; Khalil et al., 2019; Al-Abedi et al., 2022) This issue is also performed in emerging countries (Chi

et al., 2009; An, 2015; Mohammed et al., 2017; Alkurdi et al., 2017; El-habashy, 2019; Khalil et al., 2019) However, the results show mixed findings

The performance information of a company cannot be separated from the use of accounting principles applied when preparing the financial statements (Zulfikara et al., 2020) The quality of the profit information in income statement is influenced by factors such as compliance with accounting principles (Penman and Zhang, 2002) According to LaFond and Watts (2008), conservatism can reduce manipulation of financial statements and reduce agency costs, which in turn will increase corporate profits and subsequently improve firm performance Therefore, the management, the policy-maker and the investor need to understand the impact of accounting conservatism on firm performance as well as the economic consequence of accounting conservatism

Previous studies suggest that ownership structure can impact the use of accounting conservatism, with closely held companies being more likely to use conservative accounting practices (Cullinan et al., 2012; Ramalingegowda and Yu, 2012; An, 2015; Alkurdi et al., 2017; Mohammed et al., 2017; El-habashy, 2019; Liu, 2019; Le and Moore, 2021; Wahyudin, Sari et al., 2022) Studies on the influence of ownership structure on accounting conservatism in Vietnam context are limited, mainly focusing on the factors of managerial ownership (Nguyen, 2019), foreign ownership (Dang and Tran, 2020; Le and Moore, 2021), state ownership (Nguyen, 2019; Dang and Tran, 2020; Le and Moore, 2021)

International research suggests that accounting conservatism can have a positive impact on firm performance, particularly in industries that are more prone to financial distress (Ramalingegowda and Yu, 2018, Mohd et al., 2020; Cui et al., 2021) In the

context of Vietnam, there are limited studies that explore the consequences of accounting conservatism on firm performance

This study researches on adoption of accounting conservatism principle in Vietnamese listed firms' financial statements, the impact of ownership structure on the level of accounting conservatism in the financial statements as well as consequence economic of accounting conservatism on firm performance in Vietnamese listed firm

Vietnam is a civil law country (An, 2022) The country is one of the dynamic and growing emerging markets with its unique legal, cultural, and institutional characteristics (Le et al., 2021) Results of empirical studies in 49 countries of La Porta et al (2000) showed that countries in the common law had the strongest protection of outside investors (including shareholders and creditors), while countries

in the civil law had the weakest protection The findings of La Porta et al (2000) are further supported by Djankov et al (2008) when it is demonstrated that countries of the common law have higher creditor protection scores and more developed stock market than countries of the civil law Therefore, the protection of investors in Vietnam's stock market is really a matter of concern, especially quality of accounting information (Tran and Dang, 2021)

In addition, Vietnam is a frontier equity market that having typical characteristic with high ownership concentration and weak investor protection (Tran and Le, 2020) Financial reporting practices vary from country to country, it is a matter which are interested in understanding by Global investors, as well as how the particular institutional structure of each country affects the quality of financial reporting (Le and Moore, 2021)

Currently, the situation of disclosing information about financial statements of companies listed on the Vietnamese stock market has significantly improve, information about the financial situation of enterprises is more and more transparent However, according to representative of State Securities Commission of Vietnam (SCC), in fact, there are still shortcomings and violations Publicity and transparency

are requirements, principles and goals of the stock market In reality, there are cases that have not paid attention to their financial reporting obligations or intentionally violated, leading to erroneous or even fraudulent financial statements1 This situation has also happened to stock markets in the world as well as in Vietnam Specifically,

in the world there are cases such as Worldcom (1999), Enron (2001), Toshiba (2015);

In Vietnam, there are Viglacera Tu Son (2007), Bibica (2002), Bong Bach Tuyet (2007), Vien Dong (2011), most recently Descon (2018) This causes loss of public confidence in the stock market as well as difficulties for State management agencies

In recent years, Vietnam is trying to improve its accounting practice, implementing and encouraging adoption of IFRS Therefore, this should improve investor confidence and reduce investment risk premiums And, by adopting conservative accounting practices, Vietnamese companies can improve their financial reporting quality, increase investor confidence, and better manage risks in an increasingly complex business environment

For the above-mentioned reasons, these facts should motivate analysis in this study In particularly, some matters needs must be examined such as whether the adopting of accounting conservatism principle is ensured in Vietnamese listed firm's financial statements, whether ownership structure impact on accounting conservatism, besides, the consequence of accounting conservatism in Vietnamese listed companies Therefore, the thesis decided to choose the topic “Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam” to implement the doctoral thesis

2 Research objective

The aims of the thesis are to build and test a research model on the impact of ownership structure on the level of accounting conservatism in the financial statements as well as consequence economic of accounting conservatism on firm performance in Vietnamese listed firm

1

https://thoibaotaichinhvietnam.vn/se-kiem-tra-cong-ty-kiem-toan-de-tang-chat-luong-thong-tin-tai-chinh-The specific objectives of the thesis are:

(1) Whether there is an adoption of accounting conservatism principle in Vietnamese listed firms' financial statements;

(2) Whether there is a relationship between ownership structure and the level of accounting conservatism in Vietnamese listed firms;

(3) Whether there is a relationship between the level of accounting conservatism and firm performance in the Vietnamese listed firms

3 Research questions

The study designs to answer the following research questions:

Question 1: Is there an adoption of accounting conservatism principle in Vietnamese listed firms' financial statements?

Question 2: Is there a relationship between ownership structure and the level of accounting conservatism in Vietnamese listed firms?

Question 3: Is there a relationship between the level of accounting conservatism and firm performance in the Vietnamese listed firms?

4 Methodology

This study mainly applied quantitative research method The research is carried out based on popular fundamental theories such as the agency theory, political cost theory, signal theory, positive accounting theory and based on the previous studies related to accounting conservatism measurement, the effect of ownership structure on accounting conservatism as well as the effect of accounting conservatism on firm performance to determine the research model and test the hypotheses in Vietnam context

5 Research subjects and research scope

 Scope of the study

About space:

This study chooses all of listed firms in HOSE as the research sample for the following reasons: First, HOSE is considered the largest and oldest stock exchange in Vietnam because most of the big companies and enterprises are listed on HOSE (Le

et al., 2021) Since HOSE is the place where large-cap companies are listed, HOSE has the largest value and trading volume on the Vietnamese stock market Second, listing rules and criteria for each exchange (HOSE and HNX) are different (Anh, 2019), especially, the requirements for listing on HOSE are stricter than other exchanges2 Third, due to the specific characteristics of the financial structure and the difference in the application of accounting regime when preparing and presenting financial statements, therefore, some financial institutions were excluded in the sample such as banks, insurance companies, securities companies and other financial institutions Thus, the thesis only focuses on researching non-financial companies listed on HOSE in the Vietnamese Stock Exchange

About time:

The thesis conducts empirical research on the final database of companies listed

on HOSE in Vietnam over the period from 2012 to 2020 The thesis uses secondary data from financial statements, annual reports and data on stock market of companies listed on HOSE

About the level of accounting conservatism: The thesis focuses on the conditional conservatism Ball and Shivakumar (2005) show that only conditional conservatism has clear governance role Thus, this thesis focuses on measuring the conditional conservatism to examine the relationship between ownership structure and accounting conservatism; the impact of accounting conservatism on firm performance The thesis measures accounting conservatism through both earnings/stock return measures (AT) and income statement measures (Accruals) First, accounting conservatism and level of accounting conservatism measured by earnings/stock return measures is followed Basu (1997) and Khan and Watts (2009) Mohd et al (2020) state that measurement of asymmetric timeliness by Basu (1997) and accounting conservatism firm-level (C_SCORE) by Khan and Watts (2009) are the two most common measurements utilized Therefore, consistent with Mohd et al (2020), this study also use both model of Basu (1997) and Khan & Watts (2009) to measure accounting conservatism

Second, income statement measure is followed Ahmed and Duellman (2007) which developed from Givoly and Hayn (2000) model, measuring accounting conservatism through the total accruals This method is used by many previous studies to measure the level of accounting conservatism such as Ahmed and Henry (2012); Biddle et al., (2022)

Regarding firm performance: In order to have an overview of firm performance

of firms, consistent with the argument of Demsetz and Villalonga (2001), this study recognizes the need to consider measuring performance through both accounting-based and market-based measures, especially studies in emerging markets

- Accounting-based measure: Return on Assets (ROA); Return on Equity (ROE)

- Market-based measure: Tobin's Q (TBQ); Liquidity of stocks (LIQ)

6 Contribution of the thesis

The findings of the thesis are expected to bring some theoretical and practical contributions to managers, investor, users of the financial statement in Vietnamese companies and researchers in the field of management accounting As follows:

Theoretical contribution:

The first contribution of this study is that basing on the literature review, the thesis synthesis and evaluates the measurement of accounting conservatism, from which, the thesis recognizes the advantages and limitations of each measurement to selects

an appropriate method to measure accounting conservatism for companies listed on the Vietnamese stock market

The second valuable contribution is related to measure accounting conservatism

In order to test the impact of ownership structure on accounting conservatism in accordance with the characteristics in the Vietnam context, the thesis uses alternative measures of accounting conservatism such as earnings/stock return measures (Basu, 1997; Khan and Watts, 2009) and income statement measures (Ahmed & Duellman, 2007) Besides, the thesis also explores the impact of accounting conservatism on the firm performance by measuring the performance based on both accounting and market aspects (Demsetz and Villalonga, 2001) The findings of this study additional the evidence on relationship between ownership structure and accounting conservatism as well as the benefit of accounting conservatism by using a multi-perspective approach to accounting conservatism and firm performance in Vietnamese listed firms, especially, the firm-specific asymmetric timeliness score The third contribution of this study is that through the findings of the thesis, they are possible partly supplement the results of previous studies which are not consistent

on the relationship between ownership structure and accounting conservatism At the same time, it also adds research results on the relationship between some factors in ownership structure and accounting conservatism, especially, institutional ownership, ownership concentration that there are limited studies implementing in the Vietnam context Thus, the thesis provides a comprehensive empirical study on the relationship between ownership structure and accounting conservatism of listed firms in Vietnam's stock market

Last but not least, based on arguments of LaFond and Watts (2008), conservatism can reduce manipulation of financial statements and reduce agency costs, which in

turn will increase corporate profits and subsequently improve firm performance In addition, Watts and Zuo (2011) indicated that accounting conservatism improves firm performance through limiting operation of negative net present value (NPV) projects With accounting conservatism measured by earnings/stock return measures, this study provides evidence about the benefits of accounting conservatism on firm performance in Vietnam context It is complementary to evidence of previous studies

in the aspect of a positive relation between accounting conservatism and firm performance in frontier market

Practical contributions:

Firstly, providing the status of compliance with the principle of accounting conservatism both from the perspective of the whole market and firm - year level in listed firms in Vietnam stock market through a multi-perspective approach

Secondly, the thesis helps accountants, managers and the users of accounting information have full information about the level of accounting conservatism in financial statements They can recognize the importance of the principle of accounting conservatism, the impact of the practice of conservatism and the method

of measuring it so that they can consider applying the principle of conservatism appropriately to provide more useful and reliable financial statement information In addition, the content related to the principle of conservatism, the relationship between ownership structure and the level of accounting conservatism may help investors and other stakeholders analyze more deeply the factors affecting the quality of financial statement's information in order to have a basis for making the most effective economic decisions

Thirdly, the thesis provides empirical evidence on the influence of ownership structure on the level of accounting conservatism and the impact of the level of accounting conservatism on the firm performance, thereby analyzing, evaluate and make recommendations for listed firms, investors, policymakers and other stakeholders Particularly, the results of this study may help policy-makers have a picture about the impact of ownership structure on the level of accounting

conservatism and the benefit of accounting conservatism in order to have a mechanism to protect minority shareholders from the dominance of ownership structure in Vietnamese listed firms

7 Thesis structure

The thesis is arranged as follows:

 Chapter 1: Literature reviews In this chapter, the thesis reviews previous

literature on definitions, the measurement method of accounting conservatism; the relationship between ownership structure and accounting conservatism; the relationship between accounting conservatism and firm performance to identify the research gaps

 Chapter 2: Conceptual framework and hypotheses This chapter presents the

conceptual framework employed for this research and the development of hypotheses

 Chapter 3: Research methodology It discusses in detail, the process of choosing

the sample, measurement of variables and the data analysis technique

 Chapter 4: Results and Discussion

 Chapter 5: Conclusion and recommendations

CHAPTER 1: LITERATURE REVIEW

In this chapter, firstly, the thesis reviews previous studies in international and Vietnamese on accounting conservatism, consisting of the definition and measurement Secondly, the thesis reviews the relationship between ownership structure (Including ownership concentration and ownership types) on accounting conservatism Finally, the thesis reviews the impact of accounting conservatism on the firm performance On that basis, the thesis identifies research gaps and proposes

a research direction for the thesis Therefore, the content of this chapter consists of:

- Introduction the research concepts

- Approaches to methods for the measurement of accounting conservatism according to previous studies;

- Review of studies on the effect of ownership structure on accounting conservatism;

- Review of studies on the effect of accounting conservatism on firm performance;

The adopting of conservatism has also received some criticism, however, the topic has garnered interest of academicians over the last two decades, which shows that

accounting conservatism still plays an important role in financial reporting In the company, accountants have to make estimation (under uncertainty) when recognizing assets, liabilities, equity, revenue and expenses is unavoidable Some supporters of conservatism argue that abandoning the principle of conservatism can affect the behavior of managers and have negative consequences for the economy For example, the increasing of accounting scandals involves inflating performance numbers to give managers extra compensations (Whittington, 2008) Conservatism restricts the behavior of managers in enhancing the financial value of companies Therefore, for ensuring the interests of related parties such as owners, investors, lenders, etc., it is necessary to apply accounting conservatism in financial reporting of companies to control the recognition of transactions when there is no certainty (Lin and Chen, 1999).According to Watts (2003), in the contracting explanation, it is possible that

critics of accounting conservatism have not realized the usefulness of conservatism

Accounting conservatism is classified into two types, including unconditional and conditional conservatism (Beaver and Ryan, 2005) In terms of conditional conservatism, it is an asymmetric timeliness in recognizing between gains and losses

In particularly, it requires the recognition of probable losses immediately, however, not the recognition of expected gains (Basu, 1997; Ball and Shivakumar, 2005; LaFond and Watts, 2008; Khan and Watts, 2009).Common examples: Asymmetry

in profit/loss provision, inventories are recognized at less than cost or market value, goodwill impairment, impairment in long-lived asset Unconditional conservatism refers to as the understatement of assets and overstatement of liabilities (Regardless

of any economic news) and does not give information relevant for decision-making

as well as less related to contracting (Shivakumar, 2013) Common examples: Accelerated depreciation methods, R&D cost allocation, advertising cost allocation, LIFO inventory, warranty allowance, …

Follow to the Vietnamese Accounting Standard No 01, accounting conservatism explains as the essential consider, prudence and evaluation employed to make accounting estimations under conditions of uncertainty (MOF, 2002) Examples of

conditional conservatism including: Accountants are allowed to make provisions for loss of assets (inventories, financial investments, bad debts) according to regulations, re-evaluate the original cost of fixed assets… On the principle of unconditional conservatism, for example, accelerated depreciation method, research and development costs, advance deductions (Deductions for repairs and maintenance, warranty costs)

1.1.2 Ownership structure

Ownership structure is an important topic in the overall concept of corporate governance (Tran and Dang, 2021), and interested by many researchers in the corporate governance system Follow to Jensen and Meckling (1976), "ownership structure" indicate the share held between members inside and outside company as well as between investors have role direct and not direct management In addition, the ownership structure is an important role for attracting large amounts of capital for listed firms and creating wealth Thus, the ownership structure has an important influence in business operation, namely the impact on the decision-making of managers Consistent with Anh (2019), ownership variables are divided into two groups: ownership concentration and ownership structure type

1.1.2.1 Ownership concentration

Ownership concentration is defined as the majority of equity capital in the company owned by a shareholder, this shareholder can be an individual or a group of individuals or organization, they have a right to participate in decision-making in the company Major shareholders are allowed to participate in the board of directors and exercise control over the operation of the business Most previous studies measured ownership concentration by the total ownership rate of the five largest investors of the company (Mohammed et al., 2017; Alkurdi et al., 2017)

1.1.2.2 Ownership structure types

In terms of the characteristics of shareholders, the researchers divide the types of ownership structures into the following groups:

 Managerial ownership (MANA): The number of shares held by senior managers divided by total number of shares outstanding (Liu, 2019; El-habashy, 2019; Mohammed et al., 2017; Ahmed and Henry, 2012)

 Institutional ownership (INSTI): The number of shares held by institutional investors divided by total number of shares outstanding (El-habashy, 2019; Ramalingegowda and Yu, 2012; Chi et al., 2009; Lin, 2016; Ahmed and Henry, 2012)

 Foreign ownership (FORE): The number of shares held by foreign investors divided by the total number of shares outstanding (Khalil et al., 2019; Liu, 2019; Alkurdi et al., 2017)

 State ownership (STATE): The number of state-owned shares divided by the total number of shares outstanding (Alkurdi et al., 2017)

1.1.3 Firm performance

The performance of the company is an indicator that most users of accounting information are interested (Osadchy et al., 2018), it is measured through financial and non-financial indicators (Ahmed et al., 2016) In accounting, firm performance is widely used mainly related to financial information, specifically, profitability measurement to reflect the ability achieve the objectives of the company (Mohd et al., 2020) Most research on corporate governance use either accounting-based measures such as return on assets, return on equity (El-habashy, 2019) or market-based measures such as stock returns, Tobin’s Q, Market-Book-Value, Liquidity ratio (Bhagat and Bolton, 2008)

(1) Accounting-based measures

Return on assets (ROA) = Net Income/Total Assets

Return on equity (ROE) = Net Income/Total Equity

(2) Market-based measures

Tobin’s Q = (Market Value of Firm) / (Book Value of Firm)

Market-Book-Value

Liquidity ratio

1.2 Summary methods on the measurement of accounting conservatism

There are many methods, which are used to proxy accounting conservatism The literature provides some measurements that are frequently used consisting of market-to-book (MTB), earnings, accruals, accruals/cash flows relation and earnings/stock return relation measures These measurements are stratified into a balance sheet measure, income statement measures, Earnings/stock return relation measures (Zhong and Li, 2017)

1.2.1 Balance sheet measures

1.2.1.1 Book-to-market ratio

Feltham and Ohlson (1995) propose the idea of conservatism measurement based

on Book-to-market ratio Accounting conservatism demonstrates an under estimation

of net assets value related to economic values When the actual book value is lower than the market value, particularly when the Market-to-Book (MTB) ratio is greater than 1, financial reporting is considered conservatism Thus, a larger MTB ratio

indicates more conservatism financial

Several studies adopt the measurement of Feltham and Ohlson (1995) to measure conservatism such as Beatty et al., (2008) measure the overall conservatism; Ahmed and Duellman (2007) measure the conditional conservatism

CONSit=MVit

BVit

where:

CONSit: Conservatism of firm i in year t

MVit: Market value of equity of firm i at the end of the year t

BVit: Book value of equity of firm i at the end of the year t

1.2.1.2 Bias component

Beaver and Ryan (2005) state that accounting conservatism measured by MTB ratio is not supported They argue that the Book to Market ratio is divided into two components: a bias component, a lag component and in there, only bias components can be used to measure accounting conservatism Follow to Beaver and Ryan (2005), the bias component mainly captures unconditional conservatism

BTMt,i=αt+αi+ ∑6 βjRt-j,i+εt,i

j=0 where:

BTMt,i: Book to market ratio of a firm i, at the end of year t

αt: A lag component of BTM represent to the sample firms (Year-to-year variation

in the book to market common to the sample firms)

αi: A bias component of BTM for firm i

Rt-j,i: Return on Equity over each of 6 preceding years

1.2.2 Income statement measures

1.2.2.1 Accrual-based measures

It is an earnings-based measures from (Givoly and Hayn, 2000) and using the accumulation of non-operating accruals to capture bad news recording Based on the argument that conservatism understates the book value of assets and net income, Givoly and Hayn (2000) state that it leads to negative total accruals over time Therefore, firm's average negative accruals are used as a measure of accounting conservatism at the firm level and the more negative the average accruals, the more conservative the accounting over the respective periods Some studies use negative total accruals to measure the conditional conservatism such as Ahmed and Duellman (2007), García Lara et al., (2007)

Accrualsit=EBEXTit + DEPit-CFOit

TAit

CONSit=(Accruals)it x (-1)

where:

+ CONS: Accounting conservatism level (Firm i in year t)

+ EBEXT: Income before tax and extraordinary items

+ DEP: Depreciation expense

+ CFO: Cash flow from operations

+ TA: Total assets

If the value of CONSit is positive, it means accounting conservatism principle are adopted; if the value of CONSit is negative, financial reporting have a tendency to be less conservative

Ahmed and Duellman (2007) develop from the measurement of Givoly and Hayn (2000), the level of accounting conservatism is measured by the average accumulated total accruals of each company by year from t-1 to t+1, with the year t is a center of year t-1 and t+1 This measure helps to avoid unexpected fluctuations in the level of accounting conservatism by year

Accrualsit=EBEXTit + DEPit-CFOit

TAit

Average_Accrualsit=Accrualsi,t-1+ Accrualsi,t+Accrualsit+1

3CONS_ACCit=Average_Accrualsit x (-1)

where:

+ CONS_ACCit: Accounting conservatism level (Firm i in year t)

+ EBEXT: Income before tax and extraordinary items

+ DEP: Depreciation charge for the year (depreciation expense)

+ CFO: Cash flows from operations

+ TA: Total assets

A component conditional conservatism measure and it is multiplied by negative one the ratio of accumulated accruals to accumulated total assets If the value of CONS_ACCit is positive, it means more accounting conservatism; and if the value of CONS_ACCit is negative, financial reporting have a tendency to be less conservative

1.2.2.2 Cash-flow-based measures

Ball and Shivakumar (2005) follows to the definition as accounting conservatismrequires economic losses are most likely recorded in the current period, in contrast, economic gains have a tendency to be recorded gradually They developed the model

to measure accounting conservatism from the Basu (1997) model by examining the correlation between the value of accrual (ACC) and the cash flow from operating activities (CFO) to measure the ACC implementation in unlisted companies In regression above, β3 is significantly and positive, it indicates that accounting conservatism is adopted

ACCt=β0+β1DCFOt+β2CFOt+β3DCFOt*CFOt+vt

where:

ACC: Accruals equal Inventory + Accounts receivable + other current assets -

Accounts payable - Other current liabilities - Depreciation

CFO: Cash flows from operations, which equals Earnings before extraordinary items less ACC

DCFO: Dummy variable equals 1 if CFO is negative and 0 otherwise

1.2.2.3 Basu’s PEC model

Basu (1997) defines accounting conservatism that accountants tend to have need

a higher level of authentication for recognizing good news compared with bad news

in financial statements According to this definition, losses (bad news) require low verification to be recognized (are recognized in a timely manner) and are more likely

to be recognized in the current period As a result, companies with negative earnings

or negative changes in the current period are more likely to have positive earnings in next periods The recognition conditions for earnings (the good news) are stricter, it needs to be proven and more likely to persist into the future until the relevant cash flows are realized Therefore, according to Basu (1997), companies that have positive earnings or a positive change in earnings in the current period are more likely to have positive earnings or a positive change in earnings in subsequent periods (Persistence

of Earnings Changes) The prediction examines the cross-sectional by utilizing the equation:

∆Xit

Pit-1=α0+α1D+β0∆Xit-1

Pit-2 +β1D ∆Xit-1

Pit-2+eit where:

- Xit: Is earnings from firm i for fiscal year t

- ∆Xit: Is the change in earnings for firm i for fiscal year t over fiscal year t - 1

- Pit-j: Is the price per share at the close of fiscal year t – j of firm i

- D=1 if ∆Xit-1

Pit-2 <0 (Bad news)

If the value of β1 in equation above is significant and negative, it means accounting conservatism is adopted in financial reporting

1.2.3 Earnings/stock return relation measures

1.2.3.1 Basu’s asymmetric timeliness model

Basu (1997) recommends the relation between the earnings and stock return to captain accounting conservatism, after that, it is the most widely used model in conservatism research Basu (1997) defines conservatism as accountants tend to have need a higher level of authentication for recognizing good news compared to bad news in financial statements, it means that earnings with ‘bad news’ is more timely manner than ‘good news” To estimate conservatism, Basu (1997) uses negative stock returns as "bad news" and positive stock returns as “good news” Basu (1997) utilizes

a regression of earnings on stock returns to identify accounting conservatism The model:

Xit

Pit-1=α0+α1 DRit+β0 Rit+β1 Rit*DRit+εit where:

X: Earnings per share (EPS) of firm i at the ending fiscal year

P: Share price at the beginning of the fiscal year

DR: Equals 1 if R is negative, 0 otherwise

R: Stock return, it is collected in the period from 9 months (Before the fiscal year

ending) to 3 months (After the fiscal year ending) It is annual returns compounded

from monthly returns beginning the fourth month after fiscal year ending

𝑅 = (1 + 𝑅1) × (1 + 𝑅2) × (1 + 𝑅3) × … × (1 + 𝑅12) − 1

Rmonthly=Ending Value- Beginning ValueBeginning Value

In the above model, β0 indicates the sensitivity of earnings to good news (positive

returns); the sensitivity of earnings to bad news (negative returns) through (β0 + β1)

Because “bad news” is more timeliness than ‘good news’ in accounting conservatism,

therefore, β 1 should be positive and significantly, it means that β1 is larger, financial

reporting is more conservatism

1.2.3.2 Khan and Watts’ (2009) model

To measure the level of conservatism by firm-year, Khan and Watts (2009)

developed the model of Basu (1997) with AT model They argue that three firm-level

characteristics which related to conservatism through firms’ investment opportunity

including MTB ratio, firm size and leverage Therefore, Khan and Watts (2009)

utilize them to estimate firm-year level of conservatism in listed firms Based on

theoretical analysis, Basu (1997) model, Khan and Watts (2009) argue that both β0

and β1 are linear functions of the MTB ratio, firm size and leverage

G_SCOREi=β0= μ1+μ2SIZEi+μ3MBi+μ4LEVi C_SCOREi=β1= λ1+λ2SIZEi+λ3MBi+λ4LEVi

By substituting equation β0 and 𝛽1 into equation Basu (1997) and adding control

variables:

Xit

Pit-1=α0+α1DRi +(μ1+μ2SIZEi+μ3MBi+μ4LEVi)Ri+(λ1+λ2SIZEi+λ3MBi+λ4LEVi)DRi×Ri

+(δ1SIZEi+δ2MBi+δ3LEVi+δ4DRiSIZEi+δ5DRiMBi+δ6DRiLEVi)+εit

In the above equation, μit and λit are captained from annual cross-sectional

regressions (Brown et al 2011) C_Score and G_Score for firm-year calculated from

Sizeit, MTBit and LEVit Therefore, C_SCORE is the level of accounting conservatism

where:

X: Earnings per share (EPS) of firm i at the ending fiscal year

P: Share price at the beginning of the fiscal year

R: Stock return from 9 months before the fiscal year ending to 3 months after the fiscal year ending It is annual returns compounded from monthly returns (From the fourth month after fiscal year ending)

DR: Equals 1 if R is negative and 0 otherwise

SIZE is natural log of market value of equity

MB is the ratio of market value of equity to book value of equity at the end of the year

MB= market value of equityTotal Common/Ordinary Equity

LEV is leverage, defined as long-term debt plus short term debt deflated by market value of equity

LEV= Long term debt + Short term debtMarket value of equity

Based on a review of the literature on measuring accounting conservatism (Appendix 01), the thesis finds that:

Each conservatism measurement model has different strengths and limitations Therefore, the studies can choose the appropriate conservatism measurement method depending on the research objective

Conditional conservatism is an important characteristic of accounting information quality because it can improve the reliability of financial statements, thereby increasing the confidence of the users (Mohd et al., 2020) Ball and Shivakumar (2005) show that only conditional conservatism has a clear governance role

In the research, if accounting conservatism is used to proxy by single measurement, this is not sufficient to assess all factors in the sample (Givoly et al.,

2007) Some recent studies have used a composite measure to proxy accounting conservatism such as Biddle et al (2022), Liu (2019), Mohd et al (2020)

In the context of Vietnam, the thesis finds that the research on accounting conservatism mainly focuses on the measurement follow difference timeliness model (Basu, 1997), accruals (Givoly and Hayn, 2000; Ahmed and Duellman, 2007), the accruals/cash flows relation (Ball and Shivakumar, 2005) while the firm-specific asymmetric timeliness score (Khan and Watts, 2009) is limited

1.3 Research on the relationship between ownership structure and accounting conservatism

Ownership structure is the element that shows ownership agreements It is the basis for determining the control structure in the company, which is the foundation

of the corporate governance mechanism For listed companies, ownership structure often affects the preparation and application of accounting policies as well as the presentation of financial statement information, like accounting conservatism (Song, 2015) Ownership variables are divided into two groups: ownership concentration, ownership structure types (Anh, 2019) In this chapter, the thesis will review international and Vietnamese studies which carried out on the impact of ownership structure on accounting conservatism (Appendix 02) Ownership structure mainly focus on ownership concentration and ownership structure types including managerial ownership, institutional ownership, foreign ownership, state ownership 1.3.1 Ownership concentration and accounting conservatism

Theoretically, majority shareholders have two attitudes of the effect on financial statements Firstly, they intervene directly business activities in the companies Secondly, in order to serve their own personal interests, they may collect and seek information based on their own advantage or impact on manager’s decisions (El-habashy, 2019)

Empirically, research of Lskavyan and Spatareanu (2011) suggests that concentration of ownership benefits the company by improving the performance of the company, controlling and supporting the choice of accounting policy to reduce

opportunistic behavior of managers as well as improving the use of resources within

the company, thereby helping to create confidence from investors However, the

evidence of Cullinan et al (2012) indicate that ownership concentration have negative relation with accounting conservatism, the study works in listed firm in China from the period 2007 to 2009 With the sample of Egypt, El-habashy (2019) also found that the existence of large shareholders and controlling power in the company has a negative effect on the level of accounting conservatism, which means a lower level

of accounting conservatism, creating lower the quality of accounting information The reason is that, when the largest shareholders gain personal benefits or influence the decisions of managers, the need for accounting conservatism will decrease… In addition, Alkurdi et al (2017) and Al-Abedi et al (2022) show that the impact of ownership concentration on accounting conservatism is not significant with research context in Jordan and Iraq, respectively

Research results of Nguyen et al (2017) show that ownership concentration prevents independent directors from performing their supervisory function in governance, therefore, it makes negatively affects firm performance with Vietnam context In another, study of Tran and Dang (2021) exploring the influence of ownership concentration on earnings management in emerging countries and Vietnam, the results show that the degree of ownership concentration does not affect earnings management With the sample of 165 Vietnamese companies from 2007 to

2017 (listed on HOSE and HNX) and accounting conservatism measuring follow to Givoly and Hayn (2000), Nguyen et al (2022) find that ownership concentration has

a negative relationship with accounting conservatism It means that a high proportion

of shares held by the largest shareholder leads to less conservative accounting 1.3.2 Ownership types and accounting conservatism

1.3.2.1 Managerial ownership and accounting conservatism

Theoretically, managerial ownership helps to control the practice of earning management, lead to enhances the accounting information quality (Ellili, 2013) El-habashy (2019) also suggests that companies are high managerial ownership, that

means the manager who is an agent, and an owner of the company at the same time This is able to weaken agency conflict problems and have more demand accounting conservatism However, follow to positive accounting theory, managements base on their advantage to boost the earnings to improve their benefits With the argues of Ball (2001), Lafond and Roychowdhury (2008) give hypothesis and find that accounting conservatism is negatively related to managerial ownership It means firms with lower managerial ownership reporting more conservatism earnings Empirically, the relationship between managerial ownership and accounting conservatism are not consistent Most of the studies support the positive accounting theory The empirical results show that managerial ownership has a negative effect

on accounting conservatism Mohammed et al (2017) with the sample of 206 firms from 2004 to 2007 in Malaysia context, the study of Sugiarto and Fachrurrozie (2018) performed in manufacturing companies listed in Indonesia at the period 2013-2016, Liu (2019) demonstrates this negative association in listed Chinese firms in the period 2005– 2014 And a recent study of Wahyudin et al (2022) find that managerial ownership has a negative impact on accounting conservatism with a sample consists

of 59 companies listed on the Indonesia Stock Exchange over the period 2016-2018 However, Ahmed and Duellman (2007) indicates that managerial ownership has no significant relationship with the level of accounting conservatism with the sample of

306 (non-financial firms) in US over the period 1999 - 2001

In Vietnam, the study of Nguyen (2019) also found that managerial ownership is negatively associated with accounting conservatism measured by the model of Ahmed and Duellman (2007) and the sample of listed firms in Vietnam from 2012 to

2016

1.3.2.2 Institutional ownership and accounting conservatism

Theoretically, in corporate governance, institutional investors are considered as critical role, especially, in the developed markets (Liu, 2019) Jensen (1993) contends that institutional investors are active investments, play an important role in the corporate governance system, and participate in independent and objective control of