Audit partner tenure and earnings management: evidence from Vietnam

Purpose - This study aims to examine the relationship between audit partner tenure and earnings management of companies listed on Vietnamese stock exchanges. Design/methodology/approach - This study uses a sample of 1,363 observations from 2016 to 2019. This study manually collects data on audit partner tenure. Using Datastream financial data, this study calculates abnormal accruals using the modified-Jones models (Jones, 1991; Dechowet al., 1995; Kothariet al., 2005), which are used as the proxy for earnings management. This study runs Ordinary Least Squares regressions to test this study’s hypothesis. Findings - The results show that audit partner tenure is positively related to abnormal accruals. Cross-sectional analyses indicate that the relationship between audit partner tenure and abnormal accruals is more pronounced for firms that are audited by non-Big Four auditors and for firms that have chief executive officer-chairperson duality, suggesting that weak corporate governance is a channel for the established relationship. The evidence also shows that audit partner tenure is negatively associated with the magnitude of income-decreasing accruals but has no relationship with income-increasing accruals. This study’s findings are robust for several tests, including using the propensity score matching approach. Originality/value - To the best of the authors’ knowledge, this study is the first to provide evidence of the relationship between audit partner tenure and earnings management in Vietnam.