Corporate Governance, Financial Reporting Quality and Firm Performance: A Mediation Analysis
DOI:
https://doi.org/10.24311/jabes/2025.36.5.04Keywords:
Corporate governance, Financial reporting quality, Firm performanceAbstract
This study investigates the relationship between corporate governance (CG) and firm performance (FP), while also examining the mediating role of financial reporting quality (FRQ). The dataset consists of 599 non-financial firms listed on the Vietnamese stock market from 2019 to 2023. The analysis is conducted using panel data models implemented in Stata/MP 17. To assess the mediating effect of FRQ, the study employs the Sobel test to determine the extent to which CG indirectly influences FP through FRQ. The empirical results indicate that CG has a positive impact on FP. Additionally, FRQ is found to partially mediate this relationship, suggesting that CG enhances FP not only directly but also indirectly by improving FRQ. Based on these findings, the research contributes to the literature on CG in emerging markets such as Vietnam, and underscores the critical role of as an effective transmission channel of CG. Managerial implications, limitations, and future research are also discussed.
References
Alsmady, A. A. (2022). Quality of financial reporting, external audit, earnings power and companies performance: The case of Gulf Corporate Council Countries. Research in Globalization, 5(3), 100093. https://doi.org/10.1016/j.resglo.2022.100093
Arora, A., & Sharma, C. (2016). Corporate governance and firm performance in developing countries: evidence from India. Corporate Governance, 16(2), 420-436. https://doi.org/10.1108/CG-01-2016-0018
Asiedu, M. A., & Mensah, E. (2023). Re-examining the corporate governance – Firm performance nexus: Fresh evidence from a causal mediation analysis. Cogent Economics & Finance, 11(1), 2223414. https://doi.org/10.1080/23322039.2023.2223414
Becker, C. L., DeFond, M. L., Jiambalvo, J., & Subramanyam, K. R. (1998). The effect of audit quality on earnings management. Contemporary Accounting Research, 15(1), 1-24. https://doi.org/10.1111/j.1911-3846.1998.tb00547.x
Bhagat, S., & Bolton, B. (2008). Corporate governance and firm performance. Journal of Corporate Finance, 14(3), 257-273. https://doi.org/10.1016/j.jcorpfin.2008.03.006
Bhagat, S., & Bolton, B. (2019). Corporate governance and firm performance: The sequel. Journal of Corporate Finance, 58(4), 142-168. https://doi.org/10.1016/j.jcorpfin.2019.04.006
Black, B., de Carvalho, A. G., Khanna, V., Kim, W., & Yurtoglu, B. (2017). Corporate governance indices and construct validity. Corporate Governance: An International Review, 25(6), 397-410. https://doi.org/10.1111/corg.12215
Budiman, M. F. M., & Krisnawati, A. (2021). Can good corporate governance influence the firm performance? Empirical study from Indonesia transportation firms. AFRE Accounting and Financial Review, 4(1), 119-128. https://doi.org/10.26905/afr.v4i1.6017
Chan, K., Chan, L. K. C., Jegadeesh, N., & Lakonishok, J. (2006). Earnings quality and stock returns. Journal of Business, 79(3), 1041-1082. https://doi.org/10.1086/500669
Chen, R., Liu, F., & Zhao, C. (2024). Worldwide board reforms and financial reporting quality. Research in International Business and Finance, 69, 102239. https://doi.org/10.1016/j.ribaf.2024.102239
Chen, Z., Cheung, Y.-L., Stouraitis, A., & Wong, A. W. (2005). Ownership concentration, firm performance, and dividend policy in Hong Kong. Pacific-Basin Finance Journal, 13(4), 431-449. https://doi.org/10.1016/j.pacfin.2004.12.001
Chhibber, P. K., & Majumdar, S. K. (1999). Foreign ownership and profitability: property rights, control, and the performance of firms in indian industry. Journal of Law and Economics, 42(1), 209238. https://doi.org/10.1086/467423
Chung, S., & Hwang, D. S. (2025). Seeing is believing: Director accounting enforcement experience and financial reporting quality. Journal of Contemporary Accounting & Economics, 21(1), 100453. https://doi.org/10.1016/j.jcae.2024.100453
Cohen, J. R., Krishnamoorthy, G., & Wright, A. (2004). The corporate governance mosaic and financial reporting quality. Journal of Accounting Literature, 23(1), 87-152.
Costello, A. B., & Osborne, J. (2005). Best practices in exploratory factor analysis: Four recommendations for getting the most from your analysis. Practical Assessment, Research, and Evaluation, 10(7), 1-9. https://doi.org/10.7275/jyj1-4868
Dechow, P. M., & Dichev, I. D. 2002). The quality of accruals and earnings: The role of accrual estimation errors. The Accounting Review, 77(s-1), 35-59. https://doi.org/10.2308/accr.2002.77.s-1.35
Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. The Accounting Review, 70(2), 193-225. https://www.jstor.org/stable/248303
Dechow, P., Ge, W., & Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their determinants and their consequences. Journal of Accounting and Economics, 50(2-3), 344-401. https://doi.org/10.1016/j.jacceco.2010.09.001
Detthamrong, U., Chancharat, N., & Vithessonthi, C. (2017). Corporate governance, capital structure and firm performance: Evidence from Thailand. Research in International Business and Finance, 42, 689-709. https://doi.org/10.1016/j.ribaf.2017.07.011
García-Meca, E., García-Sánchez, I.-M., Martínez-Ferrero, J. (2015). Board diversity and its effects on bank performance: An international analysis. Journal of Banking & Finance, 53, 202-214. https://doi.org/10.1016/j.jbankfin.2014.12.002
Gardi, B., Aga, M., & Abdullah, N. N. (2023). Corporate governance and financial reporting quality: the mediation role of IFRS. Sustainability, 15(13), 9869. https://doi.org/10.3390/su15139869
Garrett, J., Hoitash, R., & Prawitt, D. F. (2014). Trust and financial reporting quality. Journal of Accounting Research, 52(5), 1087-1125. https://doi.org/10.1111/1475-679X.12063
Gaynor, L. M., Kelton, A. S., Mercer, M., & Yohn, T. L. (2016). Understanding the relation between financial reporting quality and audit quality. AUDITING: A Journal of Practice & Theory, 35(4), 1-22. https://doi.org/10.2308/ajpt-51453
Habib, A., & Jiang, H. (2015). Corporate governance and financial reporting quality in China: A survey of recent evidence. Journal of International Accounting, Auditing and Taxation, 24, 29-45. https://doi.org/10.1016/j.intaccaudtax.2014.12.002
Hamdi, B. (2024). Political connections of independent directors and earnings quality: The case of French firms. Economics Letters, 244, 111996. https://doi.org/10.1016/j.econlet.2024.111996
Hsu, Y.-L., & Yang, Y.-C. (2022). Corporate governance and financial reporting quality during the COVID-19 pandemic. Finance Research Letters, 47, 102778. https://doi.org/10.1016/j.frl.2022.102778
Hutagaol-Martowidjojo, Y., Valentincic, A., & Warganegara, D. L. (2019). Earnings quality and market values of indonesian listed firms. Australian Accounting Review, 29(1), 95-111. https://doi.org/10.1111/auar.12234
Huynh, Q. L., Hoque, M. E., Susanto, P., Watto, W. A., & Ashraf, M. (2022). Does financial leverage mediates corporate governance and firm performance? Sustainability, 14(20), 13545. https://doi.org/10.3390/su142013545
Jadiyappa, N., Hickman, L. E., Shrivastav, S. K., Rajpal, H., & Kaur, N. (2024). Bank-affiliated directors' monitoring, earnings management, and financial reporting quality in emerging markets: Evidence from India. Emerging Markets Review, 62, 101184. https://doi.org/10.1016/j.ememar.2024.101184
Jones, J. J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29(2), 193-228. https://doi.org/10.2307/2491047
Klein, A. (2002). Audit committee, board of director characteristics, and earnings management. Journal of Accounting and Economics, 33(3), 375-400. https://doi.org/10.1016/S0165-4101(02)00059-9
Kothari, S. P., Leone, A. J., & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, 39(1), 163-197. https://doi.org/10.1016/j.jacceco.2004.11.002
Kusnadi, Y., Leong, K. S., Suwardy, T., & Wang, J. (2016). Audit committees and financial reporting quality in Singapore. Journal of Business Ethics, 139, 197-214. https://doi.org/10.1007/s10551-015-2679-0
Le, T. P. V., & Phan, T. B. N. (2017). Capital structure and firm performance: Empirical evidence from a small transition country. Research in International Business and Finance, 42, 710-726. https://doi.org/10.1016/j.ribaf.2017.07.012
Mahdi Sahi, A., Mahdi Sahi, A., Abbas, A. F., & F. A. Khatib, S. (2022). Financial reporting quality of financial institutions: Literature review. Cogent Business & Management, 9(1), 2135210. https://doi.org/10.1080/23311975.2022.2135210
Malik, M. S., & Makhdoom, D. D. (2016). Does corporate governance beget firm performance in Fortune Global 500 companies? Corporate Governance, 16(4), 747-764. https://doi.org/10.1108/CG-12-2015-0156
Martínez-Ferrero, J. (2014). Consequences of financial reporting quality on corporate performance: Evidence at the international level. Estudios de Economía, 41(1), 49-88. https://doi.org/10.4067/S0718-52862014000100002
Mashayekhi, B., & Bazaz, M. S. (2008). Corporate governance and firm performance in Iran. Journal of Contemporary Accounting & Economics, 4(2), 156-172. https://doi.org/10.1016/S1815-5669(10)70033-3
Muhammad, H., Migliori, S., & Mohsni, S. (2021). Capital structure and firm performance: the role of corporate governance. International Journal of Business Governance and Ethics, 15(4), 436-458. https://doi.org/10.1504/IJBGE.2021.118595
Nguyen, Q. M., & Nguyen, C. V. (2024). Corporate governance, audit quality and firm performance – an empirical evidence. Cogent Economics & Finance, 12(1), 2334128. https://doi.org/10.1080/23322039.2024.2334128
OECD. (2023). G20/OECD Principles of Corporate Governance 2023. Paris: OECD Publishing. https://doi.org/10.1787/ed750b30-en
Özer, G., Aktaş, N., & Çam, İ. (2024). Corporate environmental, social, and governance activities and financial reporting quality: An international investigation. Borsa Istanbul Review, 24(3), 549-560. https://doi.org/10.1016/j.bir.2024.03.001
Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737-783. https://doi.org/10.1111/j.1540-6261.1997.tb04820.x
Siagian, F., Siregar, S. V., & Rahadian, Y. (2013). Corporate governance, reporting quality, and firm value: evidence from Indonesia. Journal of Accounting in Emerging Economies, 3(1), 4-20. https://doi.org/10.1108/20440831311287673
Transparency.org (2024). Corruption perceptions index 2024. Retrieved March 31, 2025 from https://www.transparency.org/en/cpi/2024
Weli, W., Pambudi, R. (2023). Corporate governance quality and company performance. Australasian Accounting, Business and Finance Journal, 17(2), 61-74. https://doi.org/10.14453/aabfj.v17i2.05
Wold, S., Esbensen, K., & Geladi, P. (1987). Principal component analysis. Chemometrics and Intelligent Laboratory Systems, 2(1-3), 37-52. https://doi.org/10.1016/0169-7439(87)80084-9
Downloads
Published
Issue
Section
License
Copyright (c) 2025 JOURNAL OF ASIAN BUSINESS AND ECONOMIC STUDIES
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
