Ownership structures, board characteristics and the extent of accounting conservatism in vietnamese listed firms

Pham, Duc Hieu; Vu, Quang Trong Article Ownership structures, board characteristics and the extent of accounting conservatism in vietnamese listed firms Cogent Business & Management Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Pham, Duc Hieu; Vu, Quang Trong (2024) : Ownership structures, board characteristics and the extent of accounting conservatism in vietnamese listed firms, Cogent Business & Management, ISSN 2331-1975, Taylor & Francis, Abingdon, Vol. 11, Iss. 1, pp. 1-23, https://doi.org/10.1080/23311975.2024.2433158 This Version is available at: https://hdl.handle.net/10419/326717 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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Published by informa uK Limited, trading as taylor & Francis group CONTACT Duc Hieu Pham [email protected].vn Dean of the institute of accounting & auditing, thuongmai university, 79 Ho tung Mau street, Cau giay District, Hanoi, 122868, Vietnam. https://doi.org/10.1080/23311975.2024.2433158 this is an open access article distributed under the terms of the Creative Commons attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. the terms on which this article has been published allow the posting of the accepted Manuscript in a repository by the author(s) or with their consent. Ownership structures, board characteristics and the extent of accounting conservatism in vietnamese listed firms Duc hieu phama and Quang trong vub aDean of the institute of accounting & auditing, thuongmai university, Hà nội, Vietnam; bDepartment of Managerial accounting, thuongmai university, Hà nội, Vietnam ABSTRACT the paper investigates the influence of ownership structures and board of directors’ characteristics on the extent of conservative accounting practiced by listed companies in vietnam covering 558 firms with 2,161 observations in the period of 2011–2022. the authors rely on the quantitative method and multivariate regression analyses to verify the proposed hypotheses. concerning the influence of ownership variables, the findings explore that state ownership (so) and foreign ownership (Fo) demonstrate a significant negative association with firms’ conservatism level, whereas large ownership (lo) indicates a significant positive association with firms’ conservatism degree. no association between management ownership (Mo) and firm’s conservatives was found in this study. With regard to board of directors’ characteristic variables, the study results show that size of the board (Bs), independence of the board (Bi), and women on the board (gD) positively associated with firms’ conservatism report, while duality (DuAl) demonstrates a significant negative association with firms’ conservatism level. the research suggests some implications and recommendations for regulatory agencies, listed firms, investors, and other stakeholders to have appropriate behavioral decisions related to ownership structures and board characteristics of listed firms to ensure high level of accounting conservatism in a frontier market as vietnam. 1. Introduction conservative accounting is important for dealing with uncertainties in the operational activities of businesses. the conservative principle is one of the fundamental accounting principles (gAAp) that requires a business to prepare its financial statements with a higher degree of caution and to exercise a higher degree of verification under conditions of uncertainty. Accounting conservatism (or prudence) imposes rigorous requirements of verification for recognizing positive news as gains rather than for recognizing negative news as losses in a company’s financial statements. consequently, assets and revenues are not overstated, while liabilities and expenses are not understated. conservative accounting should act as a substitute for good corporate governance because it helps avoid opportunistic management behavior and minimizes agency costs. previous studies have shown that more conservative accounting is required by companies with more severe agency problems (laFond & roychowdhury, 2008; ramalingegowda & Yu, 2012). Mohammed et al. (2017) conclude that companies with strong corporate governance tend to adopt a high accounting conservatism level. empirically, numerous studies in developed and developing countries have examined the impact of ownership structures and the characteristics of the board of directors on firms’ accounting conservatism levels (Ahmed & Duellman, 2007; Ahmed & henry, 2012; Al-saidi, 2020; Alves, 2019, 2023; chi etal., 2009; garcía lara etal., 2007; lim, 2011; Mohammed etal., 2017). however, the findings from previous research may not be adequately relevant for vietnam, which is still classified as a frontier market. to the best of ARTICLE HISTORY received 7 May 2024 revised 2 october 2024 Accepted 18 november 2024 KEYWORDS conservative accounting; ownership structures; board of directors’ characteristics; vietnam; listed firms JEL CODES M40; M41; M48 SUBJECTS Business, Management and Accounting; Finance; economics 2 D. h. phAM AnD Q. t. vu our knowledge, few studies have been recently carried out on this topic in the context of vietnam (nguyen & phan, 2024; nguyen et al., 2022; tuan et al., 2023; le & Moore, 2022; Dang & tran; 2020; le et al., 2017); and previous research mainly focused on the influence of individual dimension of ownership structures like state ownership (le & Moore, 2022), foreign ownership (le et al., 2017), and ownership concentration (nguyen etal., 2022) or only focused on the impact of board of directors (tuan etal., 2023), or financial characteristics (Dang & tran, 2020; nguyen & phan, 2024) on firms’ conservatism report. consequently, this paper is seen as one of the first empirical endeavors to furnish proofs on the association of both ownership structures and characteristics of the board of directors and accounting conservatism practiced by vietnamese listed firms. research on the association between ownership structures, characteristics of the board of directors, and conservative accounting in vietnam becomes essential, as it narrows the literature gaps on this association in an emerging country. it also contributes to the field of conservative accounting and its associated factors in vietnam for practitioners and academics. this study examines whether ownership structures and board of directors’ characteristics affect the level of conservative accounting among non-financial listed companies on the vietnam stock exchange (vse). to address this objective, the study relies on data from a sample covering 558 listed firms with 2,161 observations from 2011 to 2022 combined with four ownership variables (management ownership (Mo), foreign ownership (Fo), large ownership (lo), and state ownership (so)) and four board of directors’ characteristic variables (board size (Bs), board independence (Bi), duality (DuAl), and board gender (gD)). vietnamese listed firms provide a proper environment for this study because of the following reasons. First, vietnamese government is preparing to upgrade the vse to an emerging market from a frontier market. thus, investigating the influence of ownership structures and board of directors’ characteristics on firms’ accounting conservatism application during this period is of critical importance for regulators, practitioners, and researchers to gain knowledge on the relationships related to a firm’s capital structures, its board of directors’ characteristics, and conservative reporting practices. second, as limited research has yet examined the influence of ownership structures and board of directors’ characteristics on the degree of conservative accounting, this study aims to narrow the current gap by considering the situation in vietnam in the hope that it can provide meaningful implications for policy makers, investors, listed companies, and academic researchers. the paper enlarged the existing literature on accounting conservatism in several ways. Firstly, the paper added to the accounting conservatism literature by furnishing empirical evidence of the multiple facets of ownership structures and board of directors’ characteristics and their relationships with firms’ accounting conservatism practices in the vietnamese business environment. secondly, most of the previous studies in vietnam focused on the influence of individual dimension of ownership structures or that of board of directors on firms’ conservatism report (le etal., 2017; le & Moore, 2022; nguyen etal., 2022; tuan et al., 2023). this paper integrates both ownership structures and board of directors’ characteristics on firms’ conservatism degree, which is missing in the previous related literature. thirdly, this paper has contributed to the agency theory and board composition literature on board size, board independence, and gender diversity as effective monitors over accounting conservatism practices in vietnam. Moreover, this research paper was against the duality as its yielding a negative impact on firms’ conservatism report. lastly, the research paper has also contributed to the agency theory and firm’s ownership structure literature as exploring that state ownership and foreign ownership yielded a negative association with firms’ conservatism while ownership concentration positively encouraged firms’ conservatism degree. therefore, it can be said that the study fills a gap in the literature by providing empirical evidence of country-specific characteristics regarding ownership structures and board of directors’ attributes on accounting conservatism practices in vietnam. the remainder of this paper is organized as follows. section 2 presents a literature review, the theoretical framework of the study, and formulation of testable research hypotheses. section 3 explains the research methodology, while sections 4 and 5 present the main findings, results of the additional analysis, and discussion. section 6 presents the tests of endogeneity. section 7 provides the results of additional tests. Finally, the paper ends with section 8 concludes the study and highlights the limitations and directions for future research. cogent Business & MAnAgeMent 3 2. Literature review and hypothesis development 2.1. Conservative accounting Accounting conservatism (prudence) is one of the ancient concepts in accounting. it is the source of a long and vigorous debate among standard setters, policy makers, practitioners, and academics. it may both be defined in the context of accounting standards and accounting theory. From normative accounting perspectives, definitions of accounting conservatism under different accounting standards such as iAsB’s Framework for the preparation and presentation of Financial statements, u.s. generally Accepted Accounting principles (u.s. gAAp), and vietnamese Accounting standards (vAs) are more or less similar. here are some definitions of conservatism illustrated as follows: prudence is the inclusion of a caution degree in exercising the judgements needed in making the estimation required under unsure conditions, so that assets or incomes are not overstated while liabilities or expenses are not understated. (iAsB Framework 1989, paragraph 37). recently, in iAsB Framework 2018, the iAsB reintroduced conservatism or prudence in its current framework as attribute of neutrality: neutrality is assisted by the practice of prudence. prudence is the practice of caution in making judgements under uncertain conditions. the practice of prudence implies that assets and revenues are not overstated as well as liabilities and expenses are not understated. (iAsB Framework 2018, paragraph 2.16) in u.s. gAAp, conservatism was interpreted as a cautions reaction to uncertainty to strive to make sure that uncertainty and risks inherited in business situations are properly taken into account. (FAsB concepts statement no. 2, 1980) in vietnamese Accounting standard no.1 (vAs 01, Framework 2002): prudence can be defined as the examination, consideration, and caution needed when making the accounting estimates that are required under uncertain conditions. the principle of prudence states that: (i) the reserves must be created, but not be too large; (ii) assets or incomes are not overestated; (iii) liabilities or expenses are not underestated; (iv) revenues or gains should be recorded only if reliable evidences regarding the existence of attaining economic benefits are existed, whereas expenses should be recognized as early as possible when evidences regarding the possibility of incurring costs are arisen. (vAs 01, Framework 2002, paragraph 08) From academic perspectives, many previous studies have examined the concept of accounting conservatism. however, there is no unified definition of conservative accounting. According to Basu (1997), conservatism refers to the tendency to require high recognition of good news rather than bad news in a company’s profit and loss account. givoly and hayn (2000) argue that conservatism is an accounting treatment that leads to faster expense recognition, but slower revenue recognition. Watts (2003) describes conservatism as asymmetric timeliness in recognizing loss versus gain. traditionally, accounting conservatism has been described by the known principle of recognizing all losses but anticipating no profits or as the understatement of assets and revenues and the overstatement of liabilities and expenses (Watts & Zimmerman, 1990). Beaver and ryan (2005) considered conservative accounting, such as the average undervaluation of the book value of net assets in comparison with their market value. Accordingly, conservative accounting anticipates that, in the long run, recorded net assets will be lower than the market value (Feltham & ohlson, 1995). For the aims of this study, accounting conservatism concept will be investigated in relative senses described by Beaver and ryan (2005), penman and Zhang (2002), and Feltham and ohlson (1995). that means, when two alternative accounting approaches are available, the one that results in a lower value of net assets will be labeled as more conservative, and vice versa (hellman, 2008). the accounting conservatism is consequently described as taking the most conservative approach when several accounting alternatives are made available (sterling, 1967). conservatism is also subject to criticism because it introduces bias into accounting and affects the neutrality of reported accounting information (penman & Zhang, 2002). however, advocates of conservative accounting argue that the concept has already existed for more than ten decades, and it has been recognized in the current international financial reporting framework and considered as one of the generally accepted accounting principles (gAAp). Moving away from the conservative accounting principle 4 D. h. phAM AnD Q. t. vu would affect management behaviors, resulting in magnifying financial performance figures to obtain more rewards for management teams (Whittington, 2008). in this respect, conservative accounting can restrict management’s intention to inflate business results for personal benefit. hence, conservatism is an important accounting principle for managing potential risks and uncertainties in business activities. it is an effective mechanism to improve the credibility of reported information and can be employed to secure the interests of investors, creditors, and other stakeholders (lin & chen, 1999). 2.2. Theoretical framework Agency theory developed by Jensen and Meckling (1976) examines the agency relationship between the owner and manager of a company. Jensen and Meckling (1976) emphasized that the separation between management and proprietorship generates conflicts of interest and asymmetric information, hence stimulating managers to behave opportunistically (Fama & Jensen, 1983). these problems can be resolved by implementation of an effective mechanism of good corporate governance that helps reduce agency conflicts and asymmetric information between the principals and agents through monitoring and controlling the company’s activities (subramaniam, 2006; Watts, 2003). An effective monitoring mechanism will help improve the credibility and reliability of financial reports and as a result, minimize the capability of managers to manipulate company’s profits (Klein, 2002). corporate governance offers a set of restrictions to lessen the agency problems stemming from the firm’s nexus of contracts or a framework to assure shareholders of obtaining a target return on their invested capital (iturriaga & hoffmann, 2005; shleifer & vishny, 1997). According to Bushman and smith (2003), firm’s corporate governance structure plays an important role in financial reporting as it ensures firm’s compliance with applicable financial reporting framework and as a result, to assure the credibility and reliability of reported financial statements. therefore, an adequate corporate governance structure is anticipated to influence practices of accounting conservatism in the firm as it supplies effective monitoring mechanisms of management over the financial reporting preparation process. in light of the agency theory, it can be inferred that ownership structure and board characteristics are critical factors of corporate governance that can affect conservative accounting practices. Accordingly, this study focuses on four fundamental ownership structures (management ownership, foreign ownership, large ownership, and state ownership) and four common dimensions of board characteristics (board size, board independence, duality, and board gender) and investigates whether these critical variables impact the conservative accounting practices of listed firms in vietnam. 2.3. Hypothesis development 2.3.1. Management ownership and the extent of conservative accounting Management ownership is the proportion of shares held by the management to the total shares of the business. in light of agency theory, it has been recognized that greater management ownership helps reduce conflicts of interest between shareholders and managers, thus mitigating agency problems (Demsetz, 1983; Jensen & Meckling, 1976). the extent to which managerial ownership affects the level of conservative accounting remains controversial, depending on the viewpoint. some authors consider that there exists a positive relationship between management ownership and the level of accounting conservatism based on the idea of the convergence of interests (el-habashy, 2019; ellili, 2013; song, 2015). however, in positive accounting theory, management can rely on the advantage of boosting earnings to improve their personal benefits (Ball, 2001). Many studies support positive accounting theory, showing that management ownership has a negative effect on the level of conservative accounting (laFond & roychowdhury, 2008; liu, 2019; Mohammed et al., 2017). however, Ahmed and Duellman (2007) and Aburisheh et al. (2022) document that management ownership has no significant association with conservative accounting among us firms. ha et al. (2023) also found a non-significant association between management ownership and conservative accounting in vietnam, while pham and hoang (2023) reported a negative but insignificant impact of managerial ownership on firms’ earnings manipulation activities. owing to inconclusive empirical findings from prior research, our first hypothesis is non-directional and formulated: h1: there exists a significant association between management ownership and the extent of conservative accounting in vietnamese listed companies. cogent Business & MAnAgeMent 5 2.3.2. Foreign ownership and the extent of conservative accounting Foreign ownership is the proportion of shares owned by foreign investors to the total shares of the company. Foreign shareholders are usually large investors, such as mutual funds or other institutional investors (Dahlquist & robertson, 2001; nguyen etal., 2021), which helps reduce information asymmetry (Jensen & Meckling, 1976; laFond & Watts, 2008). thus, foreign investors are expected to yield a positive impact on accounting conservatism. empirically, the effect of foreign ownership on accounting conservatism varies. An (2015) provides empirical evidence that foreign ownership is positively related to conservatism, which means that foreign investors impair management opportunism, thus enhancing the quality of reported financial statements. liu (2019) also recognizes that foreign investors’ ownership is positively associated with the conservatism reported in Jordan. Khalil et al. (2020) also documented a positive relationship with the sample in turkey. however, studies in vietnam have shown opposite results. le et al. (2017), le and Moore (2022), and Dang and tran (2020) report a negative relationship between foreign shareholders and conservative accounting, whereas pham and hoang (2023) document no statistical connection between foreign ownership and firms’ earnings information quality. Due to the mixed empirical evidence from prior research, our second hypothesis is non-directional and tested: h2: there exists a significant association between foreign ownership and the extent of conservative accounting in vietnamese listed companies. 2.3.3. State ownership and the extent of conservative accounting state ownership or government ownership is the proportion of shares held by the government to the total shares of the company. empirically, the findings of studies on the influence of state ownership on firms’ conservative accounting levels remain controversial because of the mixed evidence (cullinan etal., 2012). Zhu and li (2008) and nawang and selahudin (2015) recognize that state shareholders weaken corporate governance and serve more agency problems, thus resulting in less conservative reports. Alkurdi et al. (2017) provide evidence that state ownership negatively impacts conservative accounting in Jordan. cullinan et al. (2012) indicate that state ownership is unrelated to conservative accounting in china. liu (2019) also indicated that state ownership is unrelated to accounting conservatism. evidence from studies in vietnam is inconsistent. nguyen et al. (2022) and le and Moore (2022) highlight that state ownership is negatively associated with conservative accounting among listed vietnamese firms. however, Dang and tran (2020) show no statistical association between state ownership and conservative accounting, while ly (2022) demonstrates a significant and also positive association between state ownership and conservatives. owing to inconclusive empirical findings in previous studies, our third hypothesis is non-directional and stated: h3: there exists a significant association between state ownership and the extent of accounting conservatism in vietnamese listed companies. 2.3.4. Large ownership and the extent of conservative accounting the concept of large ownership or blockholder refers to the proportion of shares possessed by investors who hold at least 5% in the total number of outstanding shares of a company during the financial period. Blockhoders can be considered potential controllers of equity agency problems because their large percentage of shares can render them stronger incentives to monitor firm management behaviors to secure their large investments (Alves, 2019; Demsetz, 1983). compared to small shareholders, large shareholders also have different ways to induce management decisions and exert influence on managers when evaluating bad news (chen etal., 2009). thus, as ownership concentration increases, demand for conservatism is expected to increase. empirically, the influence of ownership concentration on conservative accounting varies. haw etal. (2012) documented a positive relationship between ownership concentration and the level of conservatives. on the other side, Fan and Wong (2002) find that ownership concentration reduces the flow of financial information to external investors, resulting more information asymmetry problems that limit the transparency level 6 D. h. phAM AnD Q. t. vu of financial disclosures. nguyen etal. (2022) also documented a negative relationship between ownership concentration and conservatives among a sample of 165 vietnamese listed companies. in contrast, pham and hoang (2023) report no relationship between blockholder ownership and earnings management practices in a sample of 51 listed firms in vietnam. therefore, the entrenchment effect expects ownership concentration to reduce the level of financial reporting quality, which lowers the level of conservatism. Due to disagreement in prior research on the association between large ownership and accounting conservatism, our fourth hypothesis is non-directional and developed: h4: there exists a significant association between ownership concentration and the extent of conservative accounting in vietnamese listed companies. 2.3.5. Board size and the extent of conservative accounting Board size refers to the number of board members. Board size is important because it affects the ways in which the board can obtain consensus and employ the advantages of the knowledge and expertise of each member. in theory, there are conflicting perspectives on board size (nasr & ntim, 2018). on the one hand, a small board size is preferred because it avoids difficulties in coordination and communication, resulting in timesaving in decision making; thus, it is more efficient (Forbes & Milliken, 1999; hermalin & Weisbach, 2000). on the other hand, a large board size is considered more effective because it could bring more external interrelationships and expertise, resulting in more capabilities and resources to sort out group tasks (ebrahim & Fattah, 2015). empirical studies on the association between board size and conservative accounting have provided inconclusive results. some authors have provided evidence that a large board demands a lower level of conservatives (chi et al., 2009). By contrast, others report that a larger board results in more conservatism (Ahmed & henry, 2012). however, other empirical findings suggest that board size has no statistical impact on conservative accounting (Ahmed & Duellman, 2007; elshandidy & hassanein, 2014). in vietnam, tuan et al. (2023) report that board size has a positive influence on the conservatives of vn100 listed firms, while pham and hoang (2023) do not find any statistical relationship between the two variables in terms of reporting quality. considering the inconclusive empirical findings from prior research, we formulate the fifth non-directional hypothesis as follows: h5: there exists a significant association between board size and the extent of conservative accounting in vietnamese listed companies. 2.3.6. Women on the board and the extent of conservative accounting the presence of women on the board is proxied by the proportion of female members, which proves the management of gender diversity. the involvement of women in the board affects companies’ accounting conservatism practices. According to hillman et al. (2007), in comparison with their counterparts, female directors are, in general, less confident and risk-averse, so they try to avoid uncertainties when making decisions. they do not want to face financial risks or take action that damages their reputations. on the other hand, female directors are more sensible to make judgements related to recognize bad news, as a result, bad news may be earlier reported (ho et al., 2015). companies managed by female directors are also less involved in earnings manipulation than are those managed by male directors (Al-Absy, 2022). likewise, Boussaid etal. (2015), in their research conducted in France, found a positive relationship between gender diversity and the level of conservative accounting. other studies by huang and Kisgen (2013), palvia et al. (2015), Makhlouf et al. (2018), and Alves (2023) also reported significantly consistent results. however, Degenhart et al. (2021) did not find a significant association between gender diversity and the level of conservatism in accounting among listed firms in Brazil. pham and hoang (2023), in their study in vietnam, also asserted no evidence to prove for the relationship between the presence of female directors on board and earnings management, while Khan etal. (2022) recognized that, in the pakistani context, the female directors are positively related to earnings manipulation efforts. cogent Business & MAnAgeMent 7 given the mixed empirical findings from prior studies, our next hypothesis is non-directional and stated as follows: h6: there exists a significant association between the presence of women on board and the extent of conservative accounting in vietnamese listed companies. 2.3.7. Board independence and the extent of conservative accounting Board independence is proxied by the proportion of independent (external) directors on a board. An independent board of directors is considered one of the most effective corporate governance mechanisms, as external directors are independent of relationships and affiliations with inside members and shareholders (haque & ntim, 2018; lim, 2011). independent members are free from internal influences, and objective work relies on good corporate governance practices (Wistawan et al., 2015). two categories of empirical studies relating to independence of the board and the degree of conservatives are recognized. the first category highlights that a higher percentage of independent directors yields a positive effect on the degree of conservatives. Ahmed and Duellman (2007), el-habashy (2019), and Al-saidi (2020) report a positive relationship between independent directors and conservatives, noting that a higher proportion of board independence allows the board to exercise control over management activities and, as a result, influences conservatism levels in a positive manner. conversely, the second category asserts that there is no significant consequence between independence of the board and the level of conservatives. lim (2011) recognizes a weak relationship between independent board members and conservative accounting. Findings of garcía lara et al. (2007) asserted that there exists no relationship between director independence and the extent of conservative accounting in spanish firms. in vietnam, tuan et al. (2023) empirically showed that board independence produces more conservative financial statements. Based on the inconclusive empirical findings in prior research, we formulate the next non-directional hypothesis: h7: there exists a significant association between board independence and the extent of conservative accounting in vietnamese listed companies. 2.3.8. CEO duality and the extent of conservative accounting ceo duality refers to the practice in which the ceo is also the chairperson of the board. theoretically, two conflicting perspectives exist: agency theory does not support ceo duality because duality reduces monitoring capability, multiplies agency problem, and exacerbates asymmetric information, and it is therefore recognized as a weak corporate governance practice (nasr & ntim, 2018). in contrast, stewardship theory is in favor of ceo duality because it enables the reduction of internal conflict and restricts interferences from the board as it produces a mechanism to unify board leadership (Brickley et al., 1997; Weir et al., 2002). empirical research on the connection between ceo duality and level of conservatives has yielded mixed results. the first group recognized a favorable linkage between the separation roles and the extent of conservatives (elshandidy & hassanein, 2014). the second group reports that companies with ceo duality are likely to disclose financial statements with higher levels of conservatism (chi etal., 2009). the authors asserted that as ceo duality is recognized as a weak corporate governance practice, when ceo and chairman functions are combined, the company is likely to be more conservative to reimburse for its weakness in corporate governance mechanisms. the third group of studies identifies no connection between ceo duality and the extent of conservatives (Ahmed & Duellman, 2007; elsayed, 2010). owing to the differences in theories and prior empirical research, the following non-directional hypothesis is formulated: h8: there exists a significant association between ceo duality and the extent of conservative accounting in vietnamese listed companies. 3. Research design 3.1. Sample the population of this study is the non-financial companies listed on the vietnam stock exchange (vse) for a period of 12 years from 2011 to 2022. referred to previous studies, all financial companies (35) are 14 D. h. phAM AnD Q. t. vu of conservatives. our findings also support agency theory, suggesting that companies with more independent board members are more likely to employ conservative accounting as a substitute mechanism to reduce agency conflict and facilitate monitoring activities over executive managers. For gender diversity, our results are in agreement with previous studies by ho etal. (2015), Boussaid et al. (2015), palvia et al. (2015), and Makhlouf et al. (2018), who found a positive association between the presence of women on the board and accounting conservatism. in contrast, table 5 indicates a significant negative connection between ceo duality and the level of accounting conservatism in vietnamese listed firms; thus, hypothesis h8 was confirmed. this result is inconsistent with chi et al. (2009) findings that demonstrate a positive linkage between ceo duality and the extent of conservative accounting and agrees with previous research that indicated that firms with the separation of roles between ceo and chairmen increase the incidence of accounting conservatism (elshandidy & hassanein, 2014). therefore, it can be concluded that the separation of the two positions, chief executive officer and chairman, enhances board independence and thus restricts aggressive reporting. With regard to the control variables, our findings are in line with the results of previous studies. it is evident that large companies, companies with higher leverage, and high-profitability companies demonstrate higher levels of conservatives (Ahmed & henry, 2012; Alves, 2021; sun & liu, 2011). concerning the association between securities trading centers and the degree of accounting conservatism, the findings indicate a significant negative association, suggesting that accounting conservatism is significantly greater for firms trading on hnX than on hsX. this can be explained by the fact that higher trading conditions would decrease the extent of conservatives of listed companies in vietnam. however, a positive but insignificant association between audit quality and conservative accounting emerges. this empirical evidence from vietnamese listed firms supports the conclusions of Yaşar (2013), who recognizes no statistical difference between audit quality provided by big4 and nonbig4 audit firms in mitigating aggressive reporting practices in the context of an emerging market. 5. Additional analysis As a sensitivity check, we include vectors of yearand industry-fixed effects in the models. therefore, three empirical models are subjected to ordinary least squares regressions with fixed year and industry factors, as shown in Models 4, 5, and 6. Model 4: the impact of ownership structures on accounting conservatism level ACC MO FO SO LO LEV ROA FS AQ it =+ ++++ + ++ ββ ββββ β ββ 01 2 3 4 5 6 7 8 ∗ ∗ ∗ ∗∗ ∗ ∗∗ ++ + + + β ε 9∗FL Year Fixed Effects Industry Fixed Effects (4) Model 5: the impact of board characteristics on accounting conservatism level ACC BS BI GD DUAL LEV ROA FS it =+++ + + + + + ββ β β β β β β β 01 2 3 4 5 6 7 8 ∗ ∗∗ ∗ ∗ ∗ ∗ ∗ AA Q FL Year Fixed Effects Industry Fixed Effects++ + + β ε 9∗ (5) Model 6: the impact of ownership structures and board characteristics on accounting conservatism level ACC MO FO SO LO BS BI GD DUAL it =+ +++++++ ββ βββββββ 01 2 3 4 5 6 7 8 ∗ ∗ ∗ ∗ ∗ ∗∗ ∗ ++ + + + + + + β β ββ β 9 10 11 12 13 ∗ ∗ ∗∗ ∗LEV ROA FS AQ FL Year Fixed Effects Induustry Fixed Effects + ε (6) Additional analysis by ordinary least squares regressions with fixed year and industry factors can help control for unobservable factors (gujarati, 2004). the combined models with year fixed effects and cogent Business & MAnAgeMent 15 industry fixed effects allow the elimination of bias from unobservables that change over time but are constant over businesses, and control for factors that differ across businesses but are constant over time (gujarati, 2004). For example, in this study, an unobservable factor is industry heterogeneity that could be correlated with the dependent variable, the level of conservative accounting; consequently, the results might be biased to a certain extent. the results of the additional analysis provided important conclusions. the significance of some independent variables with the level of conservative accounting is removed, such as foreign ownership (Fo), duality (DuAl), and board independence (Bi) (see Model 6 in table 6). this might be because ordinary least squares with fixed effects regression yields biased estimations when the independent variables obviously change among companies, but there is stability over the years with the same company (Wooldridge, 2013). in this research, foreign ownership, duality, and board independence change from one company to another but are likely to remain constant over the years within the same company. 6. Endogeneity test in the regression model, lu etal. (2018) notify that endogeneity arises if an explanatory variable (called independent one) is correlated with the residuals (named as the error term or disturbance term). if endogeneity is not controlled appropriately, invalid conclusions might be obtained due to inaccurate estimates of the coefficients. this might lead to misleading policy suggestions and ambiguous directions for future research (ullah et al., 2021). in this research, an instrumental variables strategy relied on the two-stage least squares (2sls) was employed to address endogeneity problems. the two-stage least squares approach is a frequently employed instrumental variables estimation technique (ullah et al., 2021). Accordingly, the Durbin-Wu-hausman tests were performed and the results shown in the table 7 below indicate that no p-values were less than 0.05, proving that endogeneity is free from our research models. 7. Additional test We additionally verify the above models with another measurement method of the accounting conservatism variable following Ahmed and Duellman (2007) who measure the degree of accounting conservatism through accumulated non-operating accruals. Accordingly, the accounting conservatism level is measured by the average accumulated non-operating accruals of each firm by year from t-1 to t + 1, with the year t is a center. We have performed several data analysis techniques to verify all the multivariate regression assumptions, such as: normal distribution of the data, no multicollinearity problem, no autocorrelation, and no heteroscedasticity. the results showed that all the underlying assumptions were satisfied for conducting multiple regression analysis. table 8 summaries the results of regression analysis with accounting conservatism variable measured by Ahmed and Duellman (2007)’s average accumulated non-operating accruals. the additional test results of table 8 show that 5 out of 8 tested variables have the same results to those of models testing with conservative level measured by the ratio of market-to-book value proposed by Alves (2019, 2021) and Beaver and ryan (2000, 2005). specifically, large ownership (lo), board size (Bs), and board independence (Bi) have a significantly positive association with firms’ accounting conservatism level. in contrast, foreign ownership (Fo) confirms a negative impact on firms’ accounting conservatism degree while management ownership (Mo) has no association with firms’ accounting conservatism level. the three remaining variables, which are state ownership (so), gender diversity (gD), and duality (DuAl), exhibit the results different from those of models testing with accounting conservatism measures relied on the market-to-book ratio value of Alves (2019, 2021) and Beaver and ryan (2000, 2005). While state ownership (so) imposes a significant positive impact on firms’ accounting conservatism level, gender diversity (gD) and duality (DuAl) have a negative but non-significant influence on the level of accounting conservatism. 16 D. h. phAM AnD Q. t. vu 8. Conclusion this study analyzes the effect of ownership structures and the characteristics of the board of directors on accounting conservatism in vietnamese listed companies. With regard to the influence of ownership variables, the findings show that three out of the four ownership variables significantly impact the degree of accounting conservatism: state ownership (so), foreign ownership (Fo), and blockholder ownership (lo). While the first two variables, state ownership and foreign ownership, impact statistically and negatively on the conservative level, blockholder ownership indicates a significant positive association with conservative reporting. With regard to the impact of the board of directors’ characteristics, our findings show that all four variables significantly affect the extent of conservative accounting, specifically, board size (Bs), board independence (Bi), gender diversity (gD), and ceo duality (DuAl). our findings show that while board size, gender diversity, and board independence positively affect conservative levels, ceo duality significantly restrains conservative levels. these findings imply that the board of directors’ attributes play a powerful role in enhancing accounting conservatism. our findings also support agency theory; hence, it asserts that separating chairperson and ceo positions will increase the level of conservative reporting. the findings further reinforce agency theory, suggesting that more non-executive directors are more likely to employ accounting Table 6. industry and year fixed effects regressions. Model 4 Model 5 Model 6 aCC aCC aCC Mo 0.0027 0.308 [0.368] [0.429] Fo 0.0942 0.00036 [0.180] [0.184] so −0.224*** −0.146* [0.0826] [0.0852] Lo 0.358*** 0.334*** [0.0932] [0.0946] Roa 4.905*** 4.856*** 4.847*** [0.322] [0.323] [0.323] LeV 0.243** 0.302*** 0.312*** [0.111] [0.110] [0.111] Fs 0.0960*** 0.0792*** 0.0819*** [0.0152] [0.0155] [0.0158] aQ 0.129*** 0.151*** 0.132*** [0.0446] [0.0435] [0.0446] FL −0.187*** −0.186*** −0.188*** [0.0450] [0.0445] [0.0451] Bs 0.237** 0.243*** [0.0837] [0.0863] gD 0.324*** 0.298*** [0.0994] [0.102] DuaL −0.0675 −0.0830 [0.0588] [0.0634] Bi 0.206* 0.150 [0.112] [0.116] _cons −2.146*** −2.071*** −2.315*** [0.450] [0.452] [0.459] industry fixed effect included included included Year fixed effect included included included no of observations 2,161 2,161 2,161 F-statistics 13.95*** 14.24*** 13.15*** adj. R-sq 0.169 0.172 0.176 Notes: Standard errors in brackets. * p < 0.1, ** p < 0.05, *** p < 0.01 (Source: Data analysis). Table 7. tests of endogeneity: Durbin-Wu-Hausman tests. Models with ownership structure variables Models with board characteristic variables Models with both ownership structure & board characteristic variables Durbin (score) chi2(4) Durbin (score) chi2(4) Durbin (score) chi2(8) 8.2487 (p = 0.0829) 1.2092 (p = 0.8766) 8.9380 (p = 0.3475) Wu-Hausman F(4,1424) Wu-Hausman F(4,1424) Wu-Hausman F(8,1416) 2.0539 (p = 0.0846) 0.2996 (p = 0.8783) 1.1070 (p = 0.3553) (Source: Data analysis). cogent Business & MAnAgeMent 17 conservatism as a tool for mitigating agency conflict and accelerating the monitoring process over executive managers. hence, it can be concluded that there are the fewer independent directors on the board, the less accounting conservatism will be manifested. overall, our findings strongly recommend that the existence of independent directors is considered as an effective corporate governance mechanism that improves the magnitude of accounting conservatism. contrary to our expectations, this study did not find an association between management ownership and conservative accounting. this finding is inconsistent with the hypothesis on interest alignment, suggesting that managers who possess a large part of firm’s equity have a strong motivation to report information of conservative accounting in financial statements. on the other hand, control variables other than audit quality are considered because of their significant association with listed firms’ accounting conservatism application. some implications and recommendations can be derived from the empirical findings. First, as our findings highlight the importance of ownership concentration in promoting conservative accounting, blockholder ownership in vietnamese listed companies is a valuable tool for supporting conservative accounting. the empirical findings recommend that block shareholders may have strong motivations to perform conservative accounting to lessen agency costs. second, board size, board independence, and gender diversity are also shown as effective corporate governance mechanisms that can be referred to by both state management authorities and listed firms to ensure a high level of conservative accounting application. in a civil law country like vietnam that is characterized by poor investor protection and weak governance practices, a small size of the board is seen as a weak corporate governance mechanism, so managers should be conservative in their financial reporting to reimburse for this. the findings of this research make several contributions, as follows: First, the findings indicate that ownership concentration, board size, board independence, and gender diversity are effective monitoring mechanisms for accounting conservatism in vietnamese listed companies. second, the findings are relevant for other exchange markets with the same institutional environment, mainly concentrated ownership Table 8. Regression analysis of accounting conservatism with ahmed and Duellman (2007). Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 aCC aCC aCC aCC aCC aCC Mo −0.081* −0.0075 −0.0540 0.0024 [0.0481] [0.0540] [0.0470] [0.0522] Fo −0.0630** −0.0681** −0.0298 −0.0420* [0.0214] [0.0220] [0.0219] [0.0223] so 0.0575*** 0.0647*** 0.0441*** 0.0504*** [0.0101] [0.0105] [0.0101] [0.0104] Lo 0.0493*** 0.0430*** 0.0331** 0.0287** [0.0115] [0.0117] [0.0114] [0.0115] Roa −0.260*** −0.214*** −0.252*** −0.238*** −0.218*** −0.237*** [0.0386] [0.0394] [0.0388] [0.0393] [0.0396] [0.0392] LeV −0.0440** −0.0459*** −0.0365** −0.0231* −0.0236* −0.0178 [0.0135] [0.0137] [0.0136] [0.0135] [0.0136] [0.0135] Fs −0.0088*** −0.0074*** −0.010*** −0.0090*** −0.0080*** −0.0104*** [0.0018] [0.0019] [0.0019] [0.00196] [0.00191] [0.00192] aQ −0.0026 −0.0064 −0.0030 −0.00647 −0.0108** −0.00732 [0.0056] [0.0055] [0.0056] [0.00544] [0.00534] [0.00542] FL 0.0072 −0.0035 0.0047 0.00727 −0.00168 0.00473 [0.0056] [0.0057] [0.0056] [0.00548] [0.00546] [0.00548] Bs 0.010 0.0306** 0.0248** 0.0385*** [0.0107] [0.0108] [0.0103] [0.0105] gD −0.0396** −0.0121 −0.0310** −0.0126 [0.0124] [0.0126] [0.0122] [0.0124] DuaL −0.0120* −0.00106 −0.00827 −0.00048 [0.0072] [0.0076] [0.00721] [0.00771] Bi 0.0628*** 0.0576*** 0.0523*** 0.0500*** [0.0140] [0.0143] [0.0138] [0.0142] _cons 0.257*** 0.205*** 0.199*** 0.350*** 0.288*** 0.295*** [0.0476] [0.0492] [0.0489] [0.0548] [0.0555] [0.0558] industry fixed effect excluded excluded excluded included included included Year fixed effect excluded excluded excluded included included included no of observations 2,161 2,161 2,161 2,161 2,161 2,161 F-statistics 23.52 14.47 18.78 14.09 13.17 13.61 adj. R-sq 0.086 0.053 0.097 0.171 0.161 0.182 Notes: Standard errors in brackets. * p < 0.1, ** p < 0.05, *** p < 0.01 (Source: Data analysis). 18 D. h. phAM AnD Q. t. vu and ceo duality, such as the vse. Finally, investors may also benefit from these results by referring to the influence of ownership structures and characteristics of the board of directors on firms’ conservative accounting applications. it is recommended that current and potential investors bear in mind how different ownership structures might assist them in protecting their equity benefits, and mitigating asymmetric information by conservative accounting. in addition, the findings would also be taken into consideration by regulators regarding corporate governance reforms in terms of ownership structures and characteristics of the board which may modify the number of board members, board gender diversity, duality, the relative power between management and block shareholders, executive and non-executive members, and which may result in greater transparency of financial reports of vietnamese listed companies. this study cannot avoid some limitations. it mainly relies on the market value-based proxy to measure accounting conservatism levels within 2,161 observations for the 2011–2022 period. Future studies can employ other conservatism measurements proposed by givoly and hayn (2000), Ball and shivakumar (2005), and Khan and Watts (2009) as well as enlarge the sample size and sample period. Due to sample selection criteria selecting only firms with market-to-book ratio above one, it creates a strongly unbalanced panel with gaps meaning that several firms have only one observation for the whole period of 2011–2022. For this reason, we cannot use other regressions methods like fixed-effect and/or random-effect regression with current database. therefore, when having more firm-year observations future studies could employ other regressions, such as fixed-effect regression and/or random-effect regression, to verify the findings of this study. Notes 1. https://www.hsx.vn 2. https://www.hnx.vn 3. https://vietstock.vn Authors’ contributions Duc hieu pham: conceptualization, Data curation, Formal analysis, interpretation of results, Writing – original draft, Writing – review and editing, and validation. Quang trong vu: Data curation, Formal analysis, interpretation of results, Writing – original draft, and validation. Disclosure statement no potential conflict of interest was reported by the author(s). About the authors Duc Hieu Pham is an associate professor, Dean of the institue of Accounting & Auditing, thuongmai university (tMu), hanoi, vietnam. his major research focuses on corporate social responsibility, corporate governance, earnings management, financial accounting quality, human resource accounting, firm performance, and internal control. Quang Trong Vu is a senior lecturer of the institue of Accounting & Auditing, thuongmai university (tMu), hanoi, vietnam. his major research focuses on corporate social responsibility, corporate governance, and financial accounting quality. ORCID Duc hieu pham http://orcid.org/0000-0003-2362-5911 Data availability statement the data that support the findings of this study are available upon reasonable request from the corresponding author. cogent Business & MAnAgeMent 19 References Aburisheh, K. e., Dahiyat, A. A., owais, W. o., shanti, A. M. A., & AlQudah, l. A. (2022). the effect of ownership structure and board structure on accounting conservatism throughout financial reporting: evidence from Jordanian industrial corporations. Cogent Business & Management, 9(1), 1–30. https://doi.org/10.1080/23311975.2022.2112819 Ahmed, A. s., Billings, B. K., Morton, r. M., & stanford-harris, M. 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