Factors influencing the choices of accounting policies in enterprises listed on the Hanoi Stock Exchange (HNX)

ffecting profit strategy Accounting policies Increase income Decrease income Depreciation methods Straight line Diminishing value method Inventory-costing methods Fist in – first out Others Provision for obsolete inventory Make no provision Make provision Provision for bad debts Make no provision Make provision Provision for devaluation of financial investment Make no provision Make provision (Source: Kris Rowland Martin, 2002) 125 3. Results and Discussion 3.1. Descriptive statistics Table 2: Descriptive statistics of dependent and independent variables: Variable Mean Std. Error of Mean Median Std. Deviation Minimum Maximum PERCENTAGE OF INCOME- INCREASING ACCOUNTING PROCEDURES ,6141 ,01611 ,5000 ,23120 ,17 1,00 COMPANY SIZE 2,535458 3,002256 11,318355 43,506820 0,000000 31,516161 FINANCIAL ANALYSIS 1,50476 ,115203 1,00000 1,669449 0,000 11,000 BETA ,732474 ,0522527 ,600000 ,7202540 0,0000 3,5300 INTERNAL FINANCING 19,4928 1,2590 15,0000 18,1137 0,0000 108,0000 CAPITAL INTENSITY ,2686112 ,01587850 ,2163400 ,23010139 0,00000 ,89467 LABOUR FORCE INTENSITY ,1015971 ,01796381 ,0450900 ,25720263 ,00398 3,08815 OWNERSHIP DILUTION 2,665072 ,1119222 2,000000 1,6180399 0,0000 9,0000 PROPORTION OF NON-EXECUTIVE DIRECTORS ,038028 ,0055164 ,002350 ,0795594 0,0000 ,5946 PROFIT DIRECTION ,0962624 ,04224291 ,1012650 ,61215797 -7,99570 1,00114 MANAGEMENT TURNOVER ,26 ,030 0,00 ,439 0 1 BANK OWNERSHIP RATIO ,0211411 ,00549533 0,0000000 ,07963493 0,00000 ,78470 MANAGEMENT OWNERSHIP RATIO ,1556964 ,01480776 ,0363500 ,21458485 ,00010 ,88150 (Source: The Author) 126 Table 2 shows that the income-increasing accounting procedures accounting for 61.41% indicates that companies listed on the HNX have more income- increasing accounting procedures than income-reducing accounting procedures. This is consistent with positive and normative accounting theories which argue that managers choose accounting policies to maximize their benefits. Thus, it is considered a reflection of weak management and opportunism in companies. On the other hand, the percentage of non-executive directors is low at 3.039%, indicating that non-executive directors may not have enough business knowledge of the companies or they are not enough to monitor and manage business operations effectively. According to the Credit Department of the Central Bank, Vietnamese enterprises rely heavily on debt financing. The leverage with mean of 1.70 indicates that the amount of debt is 1.7 times the amount of shares. The value of beta of 71.49% (less than 100%) proves that in this period, Vietnamese enterprises are under high business risk, which can be derived from the 2008 global economic crisis, hence, enterprises in Vietnam faced difficulties in expanding the market and selling products. ““Internal financing accounted for 17.77% of total net assets, indicating that in Vietnam a very small amount of profits is used to pay dividends. A typical evidence is Cafef.vn, and a series of companies with large profits but not paying dividents such as Binh Thuan Mineral (KSA), Construction Joint Stock Company No 5. (SC5), PFV Investment & Trading Joint Stock Company, Vietinbank Securities (VietinbankSC).” The capital intensity of 31% shows that fixed assets accounted for 31% of the total assets in the enterprises. The capital intensity of industries at the reasonable level include: Petroleum Exploration and Oil Production: 90%; Metallurgical Industry: 70%; Trade: 50%; Food processing technology: 10% - 30%. Therefore, the average level of capital intensity of enterprises of 31% is quite low, indicating that level of fixed assets in enterprises is not high. The labour force intensity of 8.46% means that labor costs accounted for 8.46% of renenue. In general, large annual revenue indicates that businesses pay a large amount of salaries to employees, which implies a significant role workforce in the enterprises. The bank ownership ratio is low at 2.53%. This suggests that banks are not playing a significant role in running Vietnamese businesses. In Vietnam, banks often play the role of lenders, with little role of investors or capital contributors. 127 3.2. Regression analysis and discussion Table 3: Regression results Coefficientsa Model Unstandardized Coeffcients Standardized Coeffcients t Sig, Collinearity Statistics B Std. Error Beta Tolerance VIF 9 (Constant) .709 .020 40.192 .00 0 MANAGEMEN T TURNOVER .071 .015 .142 4.653 .00 0 .179 5.57 8 MANAGEMEN T OWNERSEHIP RATIO -.265 .031 -.185 -8.628 .00 0 .363 2.75 5 RENEVUE - 0.070 .000 -.202 - 14.189 .00 0 .824 1.21 3 AUDITORS -.177 .015 -.341 - 11.508 .00 0 .197 5.08 7 FINANCIAL DISTRESS .029 .005 .145 5.857 .00 0 .276 3.62 0 BETA -.039 .008 -.115 -4.762 .00 0 .280 3.57 5 CAPITAL INTENSITY -.048 .015 -.048 -3.160 .00 2 .703 1.42 2 FINANCIAL LEVERAGE .006 .002 .081 3.812 .00 0 .354 2.82 3 BANK OWNERSHIP RATIO -.131 .052 -.062 -2.545 .01 1 .281 3.56 2 Dependent variable: % income-increasing procedures (Adjusted R - square): 0.842 Durbin - Watson: 1.475 Akaike (AIC): 0.00708 (Source: The Author) The model of analyzing the factors influencing income-increasing accounting policies is as follows: 128 % IIAP = 0,709 + 0.142MT - 0.185MOR - 0.202CS - 0.341AU + 0.145FD - 0.115Beta - 0.048CI+ 0.081FL + 0.062BOR Table 3 shows that the adjusted R2 of the model is 0.842, which means that the model explains 84.2% of the factors influencing the income-increasing accounting procedures. Research shows that leverage is a factor explaining the choice of accounting policies, so the hypothesis H2 is supported. This is not consistent with studies of Aitken and Lotus (2009); Missonier (2004); Tawfik (2006). However, it is supported by Astami and Tower (2006). The higher the level of labour force intensity, the more likely that managers will select accounting policies to increase income, hypothesis H3 is supported. This research is consistent with studies of Liberty and Zimmerman (1986); Elias (1990); Cullian and Knoblett (1994); The greater the business risk, managers are more likely to choose the income- reducing accounting policies, the hypothesis H7 is supported. This study is consistent with study of R.L.Hugerun and M.E. Zmijewxki (1978). The higher the level of financial distress, the more likely it is that managers will choose income-increasing accounting procedures, hypothesis H9 is supported. It is consistent with studies of Schwartz (1982) and Lillien et al.(1988); Sude et al. (2007); Masahiro Rnomoto (2015). The new appointed managers will choose income-increasing accounting procedures, hypothesis H10 is supported. This is contradict to studies of Beatty and Weber (2003); Strong and Meyer (1987); Elliot and Shaw (1988); Yamaguchi (2013), but consistent with study of Shuto (2010). The higher the bank ownership ratio, the more likely it is that managers choose income-increasing accounting procedures, hypothesis H11 is supported. This is contradictory studies of Aoki and Patrick (1994); Hamamoto (2001); Okabe (1994); The higher the management ownership ratio, the more likely it is that managers will choose income-decreasing accounting policies, hypothesis H12 is supported. This research result is consistent with study of Jensen and Meckling (1976); Warfield et al. (1995); Okabe (1994). In companies audited by big audit firms, managers tend to choose accounting policies to reduce income, hypothesis H13 is supported. This is consistent with DeAngelo (1981) and Nelson et al (2002). In enterprises with high capital intensity, managers prefer accounting policies to reduce income, hypothesis H16 is supported. This is consistent with study of R.L.Hugerun and M.E.Zmijewxki (1978). 4. Conclusions and Policy Implications 129 This paper aimed at investigating factors affecting selection of accounting policies of managers in 100 companies listed on the HNX. The author examined 16 factor: Company size; Leverage; Labour force intensity; Ownership dilution; Internal financing; Proportion of non-executive directors; Risk; lncentive plans; Financial Distress; Management Turnover; Bank Ownership Ratio; Management Ownership Ratio; Auditors; Profit direction; Govermental Equity; Capital intensity which may impact choices of accounting policies of executives. The results showed that 9 factors influence selecting of accounting policies in which 4 factors are associated with income-increasing accounting policies: management turnover; financial distress; leverage; bank ownership management; 05 factors are associated with income-decreasing accounting policies. Especially, among 9 influential factors, aditors has the most significant impact (Beta of 0.341). 5. References Aitken, M. J & Loftus, J. A. (2009), ‘Determinants of accounting policy choice in the Australian property industry: A portfolio approach’, Journal of Accounting and Finance, Vol. 34, Issue 2, pp. 1-20. Aoki, M. and Patrick, H. (Eds) (1994), The Japanese Main Bank System: Its Relevance for Developing and Transforming Economies. Oxford University Press. Ashtami, W.E. Tower (2006), Accounting - Policy Choice and Firm Characteristics in the Asia Pacific Region: An International Empirical Test of Costly Contracting Theory. 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