Investor reactions to financial statement manipulation by listed firms in the Vietnamese stock market

Abstract

Type of the article: Research ArticleAbstractThis study examines investor reactions to financial statement manipulation in the Vietnamese stock market using a large, unbalanced panel dataset of 11,418 firm-year observations over the 2016–2024 period. The sample comprises 1,398 non-financial companies listed on the HOSE, HNX, and UPCOM, explicitly excluding the financial and banking sectors due to their distinctive regulatory and accounting frameworks. By integrating accrual-based earnings management measures with the M-score model, the research provides novel empirical evidence of asymmetric market behavior. Specifically, investors respond positively to income-increasing earnings management in the short term, while largely ignoring income-decreasing practices. Furthermore, the findings reveal a notable “delayed reaction” phenomenon: fraud risk, as proxied by the M-score, is not immediately incorporated into current stock prices but instead leads to significantly lower future returns. The results also emphasize the M-score’s critical moderating role, demonstrating that the negative impact on future returns is amplified in high fraud-risk environments. Ultimately, this study highlights market inefficiency in an emerging economy and recommends utilizing the M-score as an early warning tool for stakeholders to avoid the earnings illusion trap.AcknowledgmentsThe author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This work was supported by the Vietnam National University, Hanoi (VNU) under project number QG25.98 (QG25.98).