A study of factors affecting the quality of financial reporting information of listed companies on the Vietnamse stock market

proach about FS is according to the concept of IASB (2018) as Vietnam is currently on a roadmap to gradually integrate with international accounting and step by step apply IFRS in listed companies with a view to compulsory application for all listed companies by 2025. According to this approach, financial statements are reports on the situation of assets, capital, revenue, expenses, business results and financial relations of companies at a specific point of time after an operation period. 2.2.1.2. Financial statement users The thesis' viewpoint is to consider the users of financial statements according to the approach of IFRS with priority given to investors and capital providers who have less information on production, business and financial situation of companies. 2.2.2. Information quality of financial statement 2.2.2.1. Information quality In brief, information includes signals that are received, perceived and useful for users during the decision-making process. Quality Due to the above-mentioned reason, the thesis chooses the approach according to the viewpoint about information quality of professional accounting organizations such as FASB, Vietnamese Accounting Standards, and the International Accounting Standards Board (IASB) to analyze and choose the most suitable standards of quality of financial reporting information . 2.2.2.2. Quality information of financial statements a. Basic characteristics Relevance, faithful representation b. Advanced characteristics Comparability, understandability, timeliness 2.3. Theories about the relation among factors affecting information quality of financial statements 8 2.3.1. Contingency theory Theoretical application in this study: Contingency theory shows that there is no optimal organizational structure for listed companies on the SMVN. There are many factors affecting the effectiveness of the organizations in general and the quality of financial reporting information of these companies in particular. That helped the author form the idea about the impact of factors of company size, corporate culture, quick solvency, financial leverage, commitment to business ethics, business characteristics on quality of financial reporting information of listed companies on the SMVN. 2.3.2. Agency theory Theoretical application for quality of financial reporting information of listed companies on the SMVN The agency theory is used to explain managerial behavior in providing information in the financial statements to ensure reliability for the benefit of the owner or to maximize the benefits of the principal. In the event that the contract between the owner and the manager is effective and the interests of the executives are guaranteed, they will act entirely in the interests of the principal, disclose a lot of information with high quality and reliability in the FS and vice versa. From that, the author has realized that executives can perform earning management activities to maximize their by providing information on the FS, especially for listed companies in case the management rights and ownership rights are separate. Or there is a relation between earning management behaviour and quality of financial reporting information of listed companies on the SMVN. Therefore, the thesis continues to explore the relationship of these two factors. Based on the analysis of this theory, the author has studied the relation among the factors of the effectiveness of internal control, independent audit quality, regulatory role of SSC, dispersion level of shareholders, competency of accountants, professional ethics of accountants, earning management behavior regarding quality of financial reporting information of listed companies on the SMVN. 2.3.3. Stakeholder theory This theory helped the author form the idea that the dispersion level of shareholders has a negative impact on the quality of financial reporting information. The SSC's regulatory role has a positive impact on the quality of financial reporting 9 information of listed companies on the SMVN. When regulators commit to business ethics, it shows that the company wishes to treat all parties with related interests in a fair manner. The regulatory role of the SSC is to ensure fairness for parties, especially shareholders and capital providers who are provided with information that are truthful, objective, accurate, transparent, easy to understand and timely in the FS. Based on the application of this theory, the author has built the basis for recommendation that the regulatory role of the SSC and the application of international financial reporting standards affect quality of financial reporting information of listed companies on the SMVN. 2.4. Planned research model from theoretical basis 2.4.1. Planned research model from theoretical basis From the results of the research overview and the theoretical basis, the author has compiled factors affecting the quality of financial reporting information of listed companies on the SMVN and proposed the planned research model from the theoretical basis presented in diagram 2.3 2.4.2. Research hypotheses from theoretical basis Based on the research overview and the theoretical basis of the thesis, the author proposes the research hypotheses presented in Table 2.3. SUMMARY OF CHAPTER 2 CHAPTER 3 RESEARCH METHODOLOGIES 3.1. Research process 3.2. Qualitative research method In the thesis, the author used the qualitative research method to accomplish the main objectives of identifying factors affecting quality of financial reporting information of listed companies on the SMVN and building a scale of factors including independent and dependent variables. This is the first step in the preliminary study of the thesis; qualitative research results serve as the scientific basis for the author to build a questionnaire for the survey in quantitative research. Based on the literature review of previous studies, the author then interviewed experts and proposed research models and research hypotheses. 3.3. Quantitative research method 3.3.1. Building a measurement scale of variables 10 3.3.1.1. Measurement scale of dependent variables Dependent variables of quality of financial reporting information are measured through 6 observed variables: Relevance, faithful representation, comparability, understandability, verifiability, timeliness. 3.4.1.2. Measurement scale of independent variables a. Competency of accountants: The factor of competency of accountant is measured and quantified as the mean value of 5 observed variables from NL1 to NL5. b. Professional ethics of accountants This factor is quantified as the mean value of 5 observed variables DD1 to DD5. c. Effectiveness of internal control This factor is quantified as the mean value of 5 observed variables KS1 to KS5. d. Application of the International Financial Reporting Standards The IFRS is a set of accounting standards that are created and developed by the IASB. This factor is quantified as the mean value of 5 observed variables AC1 to AC5. e. Earning management behaviour This factor is quantified as the mean value of 5 observed variables HQ1 to HQ5. f. Independent audit quality This factor is quantified as the mean value of 7 observed variables KT1 to KT7. g. Regulatory role of the State Securities Commission This factor is quantified as the mean value of 3 observed variables UB1 to UB3. The thesis uses a 5-level Likert scale to find out whether these factors affect qthe uality of financial reporting information of listed companies on the SMVN. 3.4.2. Questionnaire design and trial survey 3.4.3. Official survey Sample survey The author conducted a large-scale survey and distribution of questionnaires. After unusable survey slips were removed, the number of survey 11 slips used for analysis was 350 which were sufficient for Exploratory Factor Analysis (EFA) and regression analysis. Data processing method The author examined all the obtained survey slips. Out of 764 survey slips sent, author collected 368 survey slips with 18 being invalid. In the end, the author had 350 survey slips used in this study. The author then proceeded to process the data; for direct survey cases, the author entered data into the survey slips and the answer was automatically updated in the software. Afterwards, the author used the SPSS 22.0 software to perform the next quantitative research steps Test of the measurement scale’s quality (Cronbach's Alpha test) EFA Kaiser - Meyer - Olkin Barlett’s test Total Variance Explained Factor loading Pearson's Correlation Test and multiple linear regression analysis Pearson's Correlation Test Multiple linear regression analysis SUMMARY OF CHAPTER 3 CHAPTER 4 RESEARCH RESULTS 4.1. Overview of listed companies in the Vietnamese stock market 4.1.1. The establishment and development of the Vietnamese stock market 4.1.2. Realiy of information quality of financial statements of listed companies in the Vietnamese stock market 4.2. Impact levels of factors on the information quality of financial statements of listed companies in the Vietnamese stock market 4.2.1. Qualitative research results Based on the research data gathered from group discussions, the author has built a theoretical research model including 7 factors affecting quality of financial reporting information and developed observed variables to measure independent factors as described in Chapter 3. 12 After having quantitative research results, the author continued to conduct in- depth interviews with a group of experts to discuss research results in Chapter 5. 4.2.2. Quantitative research results Descriptive results of the value of observed variables in dependent variable are presented in Table 4.7 and Table 4.9, displaying the mean value of the observed variables in dependent variables in the range of 2, 6 to 3.8. This shows the differences in assessment level about quality of financial reporting information of listed companies on the SMVN and the standard deviation of observed variables <1.2 indicating the concentration. Most observed variables of independent factors have quite similar mean values. At the same time, the standard deviation of observed variables ranged from 0.5 to <1.2, indicating the concentration of answer. The observed variables have a mean value ranging from 2.8 to 4.5, which shows that there are differences in assessment level about quality of financial reporting information of listed companies on the SMVN 4.2.3. Assessing the reliability of the scale The reliability of all measurement factors are assessed by Cronbach’s alpha coefficient. Cronbach’s alpha results in this study are as follows: All Cronbach's alpha coefficients of the independent and dependent variables that reflect the quality of financial reporting information as well as factors affecting the quality of financial reporting information have the Cronbach's alpha value > 0.6; therefore they ae qualified to be included in factor analysis. At the same time, the coefficient of correlation of total observed variables meet the requirements of> 0.3, ensuring the given scales have statistical significance. 4.2.4. Checking the convergence of the quality of financial reporting information The variable of quality of financial reporting information includes 32 observations. To see if these observations are converged, the author put all observed variables of the dependent variable into analysis through KMO and Bartlett's Test tests. The observed variables of the dependent variables all converge. Table 4.12. KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. ,865 Bartlett's Test of Sphericity Approx, Chi-Square 11474,995 Df 496 Sig, ,000 Source: The thesis’s research 13 EFA analysis in Table 4.12 shows that KMO coefficient> 0.5, eligible to conduct factor analysis, and sig is 0.000, indicating that the observed variables are correlated with each other in the factor. The author then conducted the analysis via perpendicular rotation. According to the results, it is possible to draw from 32 observations and the total variance extracted is 73.999%. The results show that the observed variables have factor loadings larger than the standard (0.40) and the difference in factor loading of an observed variable among factors>0.3. No observed variable is removed. 4.2.5. Checking the convergence of observed variables of the independent variables by EFA analysis After analyzing the Cronbach's alpha, the scales were further evaluated by EFA, using the Principal Axis Factoring method with Promax rotation (Gerbing and Anderson, 1988) and stop point for extracted factors when Eigenvalue >1. Observed variables of influencing factors were included in factor analysis. The result shows that KMO = 0.864 which satisfied KMO condition> 0.5 (Kaiser, 1974). Thus, it can be concluded that EFA is appropriate with the existing data. Similarly, the Barlett test result of <0.05 means that the variables are related to each other and are eligible for factor analysis by EFA test. The results of the test show that there are six extracted factors with Eigenvalues> 1.00; 35 observed variables are grouped into six factors; the total extracted variance is 70,970 indicating that these six factors are explained 71,001% the variation of observed variables. Most observed variables have factor loading> 0.5 but 2 observed variables, KS4 and KS5, have factor loading <0.5 so they will be removed for further analysis of factors. The results show that KMO = 0.860 satisfying KMO condition> 0.5 (Kaiser, 1974). Thus, it can be concluded that factor analysis is appropriate with the existing data. Similarly, the Barlett = 0.00 <0.05 means that the variables are related to each other and are eligible for factor analysis by EFA test. The results of the EFA show that there are six extracted factors with Eigenvalues> 1.00; 33 observed variables are grouped into six factors, the total extracted variance is 72,528, indicating that these 6 factors explained 72,528% of the variation of observed variables. Observed variables of all factors have factor loading greater than 0.5. Thus, all scales selected for variables in the model met the requiements and can be used in subsequent analyzes. Through the factor analysis process, the hypotheses are reset. H1: The competence and professional ethics of accountants positively affect the quality of financial reporting information of listed companies on the SMVN. 14 H2: The effectiveness of internal control positively affects the quality of financial reporting information of listed companies on the SMVN. H3: The application of the IFRS positively affects the quality of financial reporting information of listed companies on the SMVN H4: Earning management behaviour negatively affects the quality of financial reporting information of listed companies on SMVN. H5: Independent audit quality positively affects the quality of financial reporting information of listed companies on the SMVN. H6: The regulatory role of the SSC has the same impact direction on the quality of financial reporting information of listed companies on the SMVN. The variables are encrypted and renamed as follows: NV: Accountant (Competency and ethics) KT: Independent audit quality HQ: Earning management behaviour KS: Effectiveness of internal control UB: Regulatory role of the SSC AC: Applications of IFRS The official research model is as follows: Diagram 4.4: Official research model Source: The thesis’s research Quality of financial reporting information Accountant Effectiveness of internal control Applications of international financial reporting standards Earning management behaviour Independent audit quality Regulatory role of the State Securities Commission H1 H2 H3 H4 H5 H6 + + + + - + 15 4.2.6. Testing correlation coefficient Table 4.14: Diagram of correlation coefficient of factors Variable NV KT HQ KS UB AC CLBCTC NV Correlation coefficient r 1 ,620** ,451** ,366** ,566** ,703** ,802** Significance level ,000 ,000 ,000 ,000 ,000 ,000 KT Correlation coefficient r 1 ,452 ** ,229** ,665** ,626** ,649** Significance level ,000 ,000 ,000 ,000 ,000 HQ Correlation coefficient r 1 ,219** ,396** ,502** ,470** Significance level ,000 ,000 ,000 ,000 KS Correlation coefficient r 1 ,325 ** ,330** ,445** Significance level ,000 ,000 ,000 UB Correlation coefficient r 1 ,512** ,654** Significance level ,000 ,000 AC Correlation coefficient r 1 ,681 ** Significance level ,000 CLBCTC Correlation coefficient r 1 Significance level **. p<0.05 (2-tailed). Source: The thesis’s research From the data in the table, it can be seen that the factors NV; KT; KS; UB; AC have a positive relationship with the quality of financial reporting information. Observed significance levels of these factors are all less than 0.05 and have a linear correlation 16 coefficient of 0.802; 0.664; 0.470; 0.445; 0.665; 0.681, respectively, showing a fair degree of mutual influence between factors and that they have practical significance. Results of correlation analysis show variables are eligible to be put into regression analysis. 4.2.7. Linear regression model analysis After several times of processing regression model by different methods, the author chooses the Enter method (including all variables in the regression equation) to give the best regression model results as below. The author uses multivariate regression model that has the following form: Quality of financial reporting information = bο + b1* NV + b2*KT + b3* HQ + b4* AC + b5* KS + b6* UB + ε Testing the suitability of the model Table 4.15. Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate 1 ,857a ,734 ,729 ,38419 a. Predictors: (Constant), UB, KS, HQ, AC, KT, NV Source: The thesis’s research Table 4.16. ANOVA table a Model Sum of Squares Df Mean Square F Sig. 1 Regression 139,515 6 23,252 157,531 ,000b Residual 50,629 343 ,148 Total 190,143 349 a. Dependent Variable: CLBCTC b. Predictors: (Constant), UB, KS, HQ, AC, KT, NV Source: The thesis’s research There exists a linear relationship between the quality of financial reporting information and at least one of the following factors: Accounting staff; KT: Independent audit quality; HQ: Earning management behaviour; AC: Application of the IFRS, KS: Internal control, UB: Regulatory role of the SSC or all factors. Therefore the analyzed model is suitable for the observed data and can be generalized to the whole. 17 Multicollinearity test: With tolerance coefficients <1 and VIF coefficients <3, it shows that independent variables do not have multi-collinear phenomena. Linear regression equation: Therefore, the following hypotheses are accepted: H1: The competence and professional ethics of accountants positively affect the quality of financial reporting information of listed companies on the SMVN. H2: The effectiveness of internal control positively affects the quality of financial reporting information of listed companies on the SMVN. H3: The application of the international financial reporting standards positively affects the quality of financial reporting information of listed companies on the SMVN H5: Independent audit quality positively affects the quality of financial reporting information of listed companies on the SMVN. H6: The regulatory role of the SSC has the same impact direction on the quality of financial reporting information of listed companies on the SMVN The linear model shows the impact of factors on the quality of financial reporting information of listed companies on the SMVN: Quality of financial reporting information = 3,364 + 0,359* NV + 0,93*KT - 0,032* HQ + 0,066* AC + 0,120* KS + 0,136* UB 4.2.8. Assessing the quality of financial statements and the factors affecting the groups of financial statement makers and users According to the survey results, the group of FS makers has 243 people including accounting staff, chief accountant, director, and financial director in listed companies. The group of FS users consists of 107 investors, researchers and auditors. ANOVA Independent Samples Test analysis results show that most of the factors have differences between the two groups of FS makers and users. Only two factors, namely KT and AC, have not shown a statistically significant difference. SUMMARY OF CHAPTER 4 CHAPTER 5 DISCUSSION OF RESEARCH RESULTS AND RECOMMENDATIONS 5.1. Discussion of research results 5.1.1. Discussion on the reality of the quality of financial reporting information of listed companies in the Vietnamese stock market. 18 Quality of financial reporting information of listed companies on the SMVN: According to the descriptive analysis and EFA results for the measurement scale of quality of financial reporting information, the value of quality of financial reporting information is determined by the mean value of the observed variables and this value is equal to 3.4/5. Based on the results of this study, the quality of financial reporting information of listed companies on the SMVN is reliable. The calculation of this mean value is done according to Beest et al (2013) and Pham Quoc Thuan (2016). Relevance This component is measured by 8 observed variables with the value of 3,23/5 point, showing that the FS of listed companies on the SMVN ensure relevance at a relatively fair level. The derminination of R value is done according to Beest et al (2009) and Pham Quoc Thuan (2016). Faithful representation According to research results, FS of listed companies are created and presented at a relatively fair level of 3,2/5 point. The determination of the mean value is done according to Beest et al (2009) and Pham Quoc Thuan (2016). Understandability According to research results, FS of listed companies are considered understandable at a relatively level of 3,60/5 point. Comparability According to research results, basically, FS of listed companies meet the comparability requirement at a relatively high level of 3,36/5 point; this is presented in Diagram 5.5. The determination of the mean value is done according to Beest et al (2009) vand Pham Quoc Thuan (2016). Verifiability For listed companies, the preservation and storage of accounting vouchers which serve as the basis for verification are assessed at a high level of 3.7943/5 point. In addition, the inventory of assets and liabilities is conducted regularly. Timeliness According to the research results, the timeliness of the financial statements is assessed to meet the requirements of information users at 3.56145 /5 point. 5.1.2. Discussion on factors affecting the quality of financial reporting information of listed companies in the Vietnamese stock market 19 The proposed research model from the initial theoretical basis of the author based on the overview of the study includes 14 factors affecting the quality of financial reporting information of listed companies on SMVN. The results of qualitative research have seven factors that are included in the expected research model for quantitative research: Competence of accountant, professional ethics of accountantKT, efficiency of internal control, application of IFRS, earning management behavior, regulatory role of the SSC, independent audit quality. When conducting EFA analysis, the regression model identified six factors affecting the quality of financial reporting information of listed companies on SMVN: efficiency of internal control, application of IFRS, earning management behavior, regulatory role of the SSC, independent audit quality. The test results of the research hypotheses show that there are five factors affecting the quality of financial reporting information of listed companies on the SMVN with observed significance levels less than 0.05 with decreasing impact levels, namely: accountant, application of IFR, regulatory role of the SSC, independent audit quality and earning management behaviour. The efficiency of internal control and earning management behaviour factors have opposite impact with significant level of less than 10%. The results of this research are comple