The Impact of Earnings Management and Tax Avoidance on the Cost of Debt in Vietnamese Listed Firms

In the context of Vietnam, as an emerging economy characterized by limited financial transparency, this study aims to clarify how the credit market responds to financial management behaviors. It also examines the roles of audit quality and listing status in this relationship. The topic holds both practical and academic significance, particularly in shaping policies related to credit risk control and enhancing financial market discipline. This paper investigates the impact of earnings management and corporate income tax avoidance on the cost of debt among firms listed on the Vietnamese stock exchange during the period from 2016 to 2024. A quantitative research approach is employed using panel data regression models with firm and year fixed effects. The primary independent variables include proxies for earnings management and tax avoidance, while the dependent variable is the cost of debt. Control variables such as profitability, firm size, financial leverage, and foreign ownership are also included to ensure robustness. Further analysis is conducted by dividing the sample based on audit firm type (Big4 vs. non-Big4) and listing status (listed vs. unlisted) to investigate the heterogeneity in audit quality and market visibility. The findings indicate that earnings management has a statistically significant negative impact on the cost of debt, particularly among firms audited by Big4 and listed companies. In contrast, the effect of tax avoidance on the cost of debt is positive but relatively weak and inconsistent across groups. These results underscore the crucial role of audit quality and financial transparency in shaping credit risk responses in emerging markets.

1. Healy P.M., Wahlen J.M. A review of the earnings management literature and its implications for standard setting. Accounting Horizons. 1999;13(4):365-383. DOI: 10.2308/acch.1999.13.4.365

2. Nikulin E., Sviridov A. Earnings management by Russian сompanies at the initial public offering. Finance: Theory and Practice. 2019;23(1):147-164. DOI: 10.26794/2587-5671-2019-23-1-147-164

3. Fahd M.A. The real earnings management mediation: Relation between CEO overconfidence and subsequent performance. Finance: Theory and Practice. 2024;28(4):228-238. DOI: 10.26794/2587-5671-2024-28-4-228-238

4. Hanlon M., Heitzman S. A review of tax research. Journal of Accounting and Economics. 2010;50(2-3):127-178. DOI: 10.1016/j.jacceco.2010.09.002

5. Francis J., LaFond R., Olsson P., Schipper K. The market pricing of accruals quality. Journal of Accounting and Economics. 2005;39(2):295-327. DOI: 10.1016/j.jacceco.2004.06.003

6. Graham J.R., Tucker A.L. Tax shelters and corporate debt policy. Journal of Financial Economics. 2006;81(3):563- 594. DOI: 10.1016/j.jfineco.2005.09.002

7. Bharath S. T., Sunder J., Sunder S.V. Accounting quality and debt contracting. The Accounting Review. 2008;83(1):1-28. DOI: 10.2308/accr.2008.83.1.1

8. Lee S. Changes in the effect of corporate tax avoidance on the cost of debt over the past 25 years. Pacific Accounting Review. 2022;34(2):293-309. DOI: 10.1108/PAR-03-2021-0031

9. Dyreng S.D., Hanlon M., Maydew E.L. Long-run corporate tax avoidance. The Accounting Review. 2008;83(1):61- 82. DOI: 10.2308/accr.2008.83.1.61

10. DeFond M., Zhang J. A review of archival auditing research. Journal of Accounting and Economics. 2014;58(2- 3):275-326. DOI: 10.1016/j.jacceco.2014.09.002

11. Ball R., Shivakumar L. Earnings quality in UK private firms: Comparative loss recognition timeliness. Journal of Accounting and Economics. 2005;39(1):83-128. DOI: 10.1016/j.jacceco.2004.04.001

12. Minh Ha N., Phuong Trang T.T., Vuong P.M. Relationship between tax avoidance and institutional ownership over business cost of debt. Cogent Economics & Finance. 2022;10(1):2026005. DOI: 10.1080/23322039.2022.2026005

13. Myers S. C., Majluf N. S. Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics. 1984;13(2):187-221. DOI: 10.1016/0304-405X(84)90023-0

14. Jensen M.C., Meckling W.H. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics. 1976;3(4):305-360. DOI: 10.1016/0304-405X(76)90026-X

15. Liu Q., Lu Z.J. Corporate governance and earnings management in the Chinese listed companies: A tunneling perspective. Journal of Corporate Finance. 2007;13(5):881-906. DOI: 10.1016/j.jcorpfin.2007.07.003

16. Spence M. Job market signaling. The Quarterly Journal of Economics. 1973;87(3):355-374. DOI: 10.2307/1882010

17. Orazalin N., Akhmetzhanov R. Earnings management, audit quality, and cost of debt: Evidence from a Central Asian economy. Managerial Auditing Journal. 2019;34(6):696-721. DOI: 10.1108/MAJ-12-2017-1730

18. Brusov P., Filatova T. Capital structure theory: Past, present, future. Mathematics. 2023;11(3):616. DOI: 10.3390/math11030616

19. Ustadza A.I., Firmansyah A. Are tax avoidance and earnings management link to cost of debt? Jurnal Kajian Akuntansi. 2023;7(1):16-34. DOI: 10.33603/jka.v7i1.7192

20. Kim J.-B., Sohn B.C. Real earnings management and cost of capital. Journal of Accounting and Public Policy. 2013;32(6):518-543. DOI: 10.1016/j.jaccpubpol.2013.08.002

21. Sánchez-Ballesta J.P., Yagüe J. Tax avoidance and the cost of debt for SMEs: Evidence from Spain. Journal of Contemporary Accounting & Economics. 2023;19(2):100362. DOI: 10.1016/j.jcae.2023.100362

22. Firmansyah A., Febriyanto A.S. The effects of tax avoidance, accrual earnings management, real earnings management, and capital intensity on the cost of equity. Jurnal Dinamika Akuntansi. 2018;10(1):40-50. DOI: 10.15294/jda.v10i1.12976

23. Guedrib M., Hamdi Z. Investigating tax risk’s influence on tax avoidance and debt costs: Evidence from France. Journal of Financial Crime. 2025;32(2):321-336. DOI: 10.1108/JFC-03-2024-0111

24. Kovermann J.H. Tax avoidance, tax risk and the cost of debt in a bank-dominated economy. Managerial Auditing Journal. 2018;33(8-9):683-699. DOI: 10.1108/MAJ-12-2017-1734

25. Medhioub N., Boujelbene S. Tax avoidance and cost of debt: Does integrated report assurance matter? Journal of Accounting in Emerging Economies. 2024;14(1):75-98. DOI: 10.1108/JAEE-04-2022-0114

26. Duong T.-Q., Huang Y.-C. The mediation effects of tax avoidance between ESG and cost of debt, firm value: Evidence from ASEAN listed corporations. Journal of Entrepreneurship, Business and Economics. 2022;10(2S2):201-232. URL: https://oaji.net/articles/2023/1301-1714653598.pdf

27. Kholbadalov U. The relationship of corporate tax avoidance, cost of debt and institutional ownership: Evidence from Malaysia. Atlantic Review of Economics = Revista Atlántica de Economía. 2012;2(1):7-36. URL: https://www.econstor.eu/bitstream/10419/146568/1/776407600.pdf

28. Masri I., Martani D. Tax avoidance behaviour towards the cost of debt. International Journal of Trade and Global Markets. 2014;7(3):235-249. DOI: 10.1504/IJTGM.2014.064911

29. Cen W., Tong N., Sun Y. Tax avoidance and cost of debt: Evidence from a natural experiment in China. Accounting & Finance. 2017;57(5):1517-1556. DOI: 10.1111/acfi.12328

30. Wooldridge J.M. Econometric analysis of cross section and panel data. Cambridge, MA: The MIT Press; 2010. 1096 p.

31. Jones J. J. Earnings management during import relief investigations. Journal of Accounting Research. 1991;29(2):193-228. DOI: 10.2307/2491047

32. Dechow P.M., Sloan R.G., Sweeney A.P. Detecting earnings management. Accounting Review. 1995;70(2):193- 225. URL: http://sseriga.free.fr/course/uploads/FA%20-%20PM/Dechow_et_al_1995.pdf

33. Kothari S.P., Leone A.J., Wasley C.E. Performance matched discretionary accrual measures. Journal of Accounting and Economics. 2005;39(1):163-197. DOI: 10.1016/j.jacceco.2004.11.002

34. Kasznik R. On the association between voluntary disclosure and earnings management. Journal of Accounting Research. 1999;37(1):57-81. DOI: 10.2307/2491396

35. Titman S., Wessels R. The determinants of capital structure choice. The Journal of Finance. 1988;43(1):1-19. DOI: 10.1111/j.1540-6261.1988.tb02585.x

36. Lambert R., Leuz C., Verrecchia R.E. Accounting information, disclosure, and the cost of capital. Journal of Accounting Research. 2007;45(2):385-420. DOI: 10.1111/j.1475-679X.2007.00238.x

37. Nguyen A.H. Ownership structure and earnings management: Empirical evidence from Vietnam real estate sector. Real Estate Management and Valuation. 2020;28(2):37-51. DOI: 10.1515/remav-2020-0014

38. Sengupta P. Corporate disclosure quality and the cost of debt. The Accounting Review. 1998;73(4):459-474.

39. Shleifer A., Vishny R.W. A survey of corporate governance. The Journal of Finance. 1997;52(2):737-783. DOI: 10.1111/j.1540-6261.1997.tb04820.x

40. Modigliani F., Miller M.H. The cost of capital, corporation finance and the theory of investment. The American Economic Review. 1958;48(3):261-297. URL: https://pesquisa-eaesp.fgv.br/sites/gvpesquisa.fgv.br/files/arquivos/ terra_-_the_cost_of_capital_corporation_finance.pdf

41. Thuy V.V.T., Ngoc H.D., Ngoc T.N., Le H.A. Earnings quality and the cost of debt: A case study of Vietnam. Cogent Business & Management. 2022;9(1):2140489. DOI: 10.1080/23311975.2022.2140489

42. Hung D.N., Van V.T.T. Studying the impacts of earnings quality on stock return: Experiments in Vietnam. International Journal of Advanced and Applied Sciences. 2020;7(4):45-53. DOI: 10.21833/ijaas.2020.04.007

43. Habib A., Bhuiyan B.U., Islam A. Financial distress, earnings management and market pricing of accruals during the global financial crisis. Managerial Finance. 2013;39(2):155-180. DOI: 10.1108/03074351311294007

44. Krishnan G.V. Audit quality and the pricing of discretionary accruals. Auditing: A Journal of Practice & Theory. 2003;22(1):109-126. DOI: 10.2308/aud.2003.22.1.109

45. Fan J.P.H., Wong T.J. Corporate ownership structure and the informativeness of accounting earnings in East Asia. Journal of Accounting and Economics. 2002;33(3):401-425. DOI: 10.1016/S0165-4101(02)00047-2

46. Desai M.A., Dharmapala D. Corporate tax avoidance and high-powered incentives. Journal of Financial Economics. 2006;79(1):145-179. DOI: 10.1016/j.jfineco.2005.02.002

47. DeAngelo L.E. Auditor size and audit quality. Journal of Accounting and Economics. 1981;3(3):183-199. DOI: 10.1016/0165-4101(81)90002-1

48. Gul F.A., Fung S.Y.K., Jaggi B. Earnings quality: Some evidence on the role of auditor tenure and auditors’ industry expertise. Journal of Accounting and Economics. 2009;47(3):265-287. DOI: 10.1016/j.jacceco.2009.03.001

49. Healy P.M., Palepu K.G. Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics. 2001;31(1-3):405-440. DOI: 10.1016/S0165-4101(01)00018-0

50. Piot C., Missonier-Piera F. Corporate governance, audit quality and the cost of debt financing of French listed companies. SSRN Electronic Journal. 2007. DOI: 10.2139/ssrn.960681

51. Ball R., Jayaraman S., Shivakumar L. Audited financial reporting and voluntary disclosure as complements: A test of the confirmation hypothesis. Journal of Accounting and Economics. 2012;53(1-2):136-166. DOI: 10.1016/j.jacceco.2011.11.005