Flying under the radar: earnings management choices and anti-corruption

Abstract:
Purpose
This study examines how anti-corruption pressure influences corporate earnings management practices in Vietnam, a country undergoing an intensive anti-corruption campaign.

Design/methodology/approach
This study employs a news-based anti-corruption index to measure anti-corruption intensity and investigates its impact on earnings management behavior among Vietnamese firms. Using a sample of non-financial listed companies in Vietnam, the study distinguishes between accrual-based and real earnings management (REM) by employing regression techniques with multiple robustness and endogeneity checks.

Findings
The results reveal a substitution effect: as anti-corruption pressure increases, firms reduce accrual-based earnings management (AEM) but increase REM, a form that is relatively harder to detect. This study suggests that in provinces with poorer local institutional quality, firms' expected political and detection costs differ, thereby altering their reallocation between AEM and REM as anti-corruption intensifies. Further analyses indicate that the impact of anti-corruption pressure on earnings management choices varies systematically with local institutional quality.

Originality/value
This study offers new insights into the impact of anti-corruption on firms' earnings management choices. This research contributes to the Economic Theory of Crime and Punishment and the Political Cost Theory while emphasizing the critical role of local institutional quality in shaping how firms respond to anti-corruption intensities. More broadly, our study develops a conceptual framework for understanding firm behavior under institutional pressure and offers guidance for designing more effective and context-sensitive anti-corruption policies.