Title: Income smoothing behaviour and investment efficiency: evidence from an emerging market

Authors: Trinh Hiep Thien; Nguyen Xuan Hung

Addresses: School of Accounting, University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam ' School of Accounting, University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam

Abstract: This study is conducted to investigate the relationship between income smoothing (ISM) behaviour and investment efficiency (IE) in the context of Vietnam. The research sample includes data from the financial statements of 596 non-financial listed firms for the period from 2010-2017. In this study, the panel fixed-effect regression method (FEM) is employed to measure the correlation and relationships of the variables in the research model. Besides, the generalised method of moments (GMM) method is also applied to control the endogeneity problem when examining the ISM-IE relationship. The results show that ISM has a negative relationship with IE, and this association seems to strengthen for the overinvestment companies. In contrast, an insignificant correlation is found for underinvestment ones. This study has important implications for investors, listed companies, and especially policymakers for judgement of the likelihood of opportunistic behaviour like ISM before making investment decisions. Finally, the research contributes to a literature review on IE and ISM behaviour in emerging markets that have not yet fully adopted IFRS.

Keywords: investment efficiency; income smoothing behaviour; emerging market; fixed-effect regression method; FEM; generalised method of moments; GMM.

DOI: 10.1504/IJCG.2024.136642

International Journal of Corporate Governance, 2024 Vol.14 No.1, pp.65 - 93

Received: 05 Jul 2023
Accepted: 02 Nov 2023
Published online: 12 Feb 2024 *