Earning management based on modified beneish model m-score and fraud triangle in assessing the likelihood of earning management - evidence from listed firms on Vietnamese stock exchanges

Abstract

Our group conducted a research project on Earning Management using the Modified Beneish M-Score Model and Fraud Triangle, with the following objectives: (1) identify factors leading to fraud in financial statements of companies listed on the Ho Chi Minh City Stock Exchange; (2) measure the impact of each factor leading to fraud in financial statements of companies listed on the Ho Chi Minh City Stock Exchange. After an overview of previous studies, the group built a research model with 1 dependent variable and 6 independent variables. The dependent variable is earning management. The independent variables include six variables: “financial stability”, “leverage”, “financial performance”, “nature of the industry”, “effectiveness of supervision”, and “auditor change”. Our group collected 861 financial statements of 287 companies in different industry groups listed on the Ho Chi Minh City Stock Exchange (HOSE). After going through the data cleaning steps, the author classified 861 financial statements into two groups: group 1 is financial statements with the potential for fraud, and group 2 is financial statements without the potential for fraud. To classify into the above two groups, the group relied on the Modified Beneish M-Score Model (including five variables from Beneish's original M-Score model: “GMI”, “SGI”, “DEPI”, “SGAI”, and “TATA” combined with three ratios taken from the research paper of Wanting Lu & Xiaokang Zhao (2020), including one non-financial variable: audit opinion (AO) and two financial variables: Current Assets Turnover (1/CAT) and Fixed Assets Ratio (FAR) to detect financial statements with the potential for fraud. The author continued to proceed through the next steps of data processing and analysis. The research results showed that “debt ratio”, “changes in receivables to sales”, and “audit changes” have a positive relationship with earnings management; “asset growth” and “return on assets” have a negative relationship with earnings management. In addition, “changes in receivables to sales” and the independent commissioner ratio have no relationship with earnings management