Earnings Management and Investment Efficiency: The Moderating Roles of Institutional and State Ownership in Vietnam

This study examines the impact of earnings management (EM) on firms’ investment efficiency and investigates whether ownership structure—specifically institutional ownership and state ownership—moderates this relationship in Vietnam. Using 2,170 firm-year observations from non-financial listed firms over the period 2020–2024, the study employs feasible generalized least squares (FGLS) to address heteroskedasticity and serial correlation, complemented by multinomial logistic regression as a robustness check. The results show that accrual-based earnings management (AEM) significantly increases deviations from optimal investment, raising the likelihood of both over-investment and under-investment. Real earnings management (REM) exhibits weaker and less consistent effects and is primarily associated with under-investment. Institutional ownership plays an effective monitoring role by attenuating the adverse impact of AEM on investment efficiency. State ownership also weakens the marginal effect of AEM on investment; however, firms with higher state ownership are more likely to exhibit inefficient investment outcomes overall. The multinomial logit analysis confirms the robustness of these findings across categorical investment outcomes. Overall, the study highlights earnings management as an important source of inefficient capital allocation in emerging markets and underscores the heterogeneous governance roles of institutional and state ownership. The findings provide policy-relevant insights for Vietnam, emphasizing the need to enhance financial transparency and strengthen ownership-based monitoring mechanisms to improve investment efficiency.