The influence of audit quality on real earnings management: Do leverage and cash flow matter?
Purpose – This study examines how financial leverage and cash flow influence the relationship between audit quality and real earnings management. Design/methodology/approach – We analyze data from 499 non-financial firms listed on the Vietnam stock market between 2008 and 2023. The study uses the Ro...
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| Format: | Article |
| Language: | English |
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Emerald Publishing
2025-05-01
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| Series: | Journal of Economics and Development |
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| Online Access: | https://www.emerald.com/insight/content/doi/10.1108/JED-05-2024-0190/full/pdf |
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| _version_ | 1849310335183355904 |
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| author | Lien Quynh Le |
| author_facet | Lien Quynh Le |
| author_sort | Lien Quynh Le |
| collection | DOAJ |
| description | Purpose – This study examines how financial leverage and cash flow influence the relationship between audit quality and real earnings management. Design/methodology/approach – We analyze data from 499 non-financial firms listed on the Vietnam stock market between 2008 and 2023. The study uses the Roychowdhury (2006) model to assess real earnings management and applies OLS, FEM, and GLS regressions. Findings – The results indicate that audit quality influences real earnings management differently depending on a firm’s financial condition. Specifically, higher audit quality is associated with lower levels of real earnings management in firms with sufficiently low financial leverage and sufficiently high operating cash flows. However, audit quality is positively related to real earnings management for firms with sufficiently high leverage and sufficiently low or negative cash flows. Originality/value – This study offers a new insight into the impact of audit quality on real earnings management. Contributing to the agency theory, this study emphasizes the critical role of the firm’s financial condition in shaping the relationship. This study argues that a firm’s internal financial condition may affect its outside monitoring effectiveness, such as audit quality, in limiting the inherent conflicts of interest between managers and shareholders. |
| format | Article |
| id | doaj-art-07f84bd7a00d4a6a97b12dbc727de6bb |
| institution | Kabale University |
| issn | 1859-0020 2632-5330 |
| language | English |
| publishDate | 2025-05-01 |
| publisher | Emerald Publishing |
| record_format | Article |
| series | Journal of Economics and Development |
| spelling | doaj-art-07f84bd7a00d4a6a97b12dbc727de6bb2025-08-20T03:53:46ZengEmerald PublishingJournal of Economics and Development1859-00202632-53302025-05-0127214415710.1108/JED-05-2024-0190The influence of audit quality on real earnings management: Do leverage and cash flow matter?Lien Quynh Le0School of Accounting and Auditing, National Economics University, Hanoi, VietnamPurpose – This study examines how financial leverage and cash flow influence the relationship between audit quality and real earnings management. Design/methodology/approach – We analyze data from 499 non-financial firms listed on the Vietnam stock market between 2008 and 2023. The study uses the Roychowdhury (2006) model to assess real earnings management and applies OLS, FEM, and GLS regressions. Findings – The results indicate that audit quality influences real earnings management differently depending on a firm’s financial condition. Specifically, higher audit quality is associated with lower levels of real earnings management in firms with sufficiently low financial leverage and sufficiently high operating cash flows. However, audit quality is positively related to real earnings management for firms with sufficiently high leverage and sufficiently low or negative cash flows. Originality/value – This study offers a new insight into the impact of audit quality on real earnings management. Contributing to the agency theory, this study emphasizes the critical role of the firm’s financial condition in shaping the relationship. This study argues that a firm’s internal financial condition may affect its outside monitoring effectiveness, such as audit quality, in limiting the inherent conflicts of interest between managers and shareholders.https://www.emerald.com/insight/content/doi/10.1108/JED-05-2024-0190/full/pdfAgency theoryAudit qualityCash flowLeverageReal earnings management |
| spellingShingle | Lien Quynh Le The influence of audit quality on real earnings management: Do leverage and cash flow matter? Journal of Economics and Development Agency theory Audit quality Cash flow Leverage Real earnings management |
| title | The influence of audit quality on real earnings management: Do leverage and cash flow matter? |
| title_full | The influence of audit quality on real earnings management: Do leverage and cash flow matter? |
| title_fullStr | The influence of audit quality on real earnings management: Do leverage and cash flow matter? |
| title_full_unstemmed | The influence of audit quality on real earnings management: Do leverage and cash flow matter? |
| title_short | The influence of audit quality on real earnings management: Do leverage and cash flow matter? |
| title_sort | influence of audit quality on real earnings management do leverage and cash flow matter |
| topic | Agency theory Audit quality Cash flow Leverage Real earnings management |
| url | https://www.emerald.com/insight/content/doi/10.1108/JED-05-2024-0190/full/pdf |
| work_keys_str_mv | AT lienquynhle theinfluenceofauditqualityonrealearningsmanagementdoleverageandcashflowmatter AT lienquynhle influenceofauditqualityonrealearningsmanagementdoleverageandcashflowmatter |