Earnings persistence of Vietnamese commercial banks-empirical evidences and discussion

Abstract

Earnings persistance, the positive relationship between reported earnings and future earnings or ability to be
repeated of earnings, is a proxy of earnings quality that is expected by many investors and other stakeholders.
However, previous researches have evidenced that to meet this expectation, management tend use creative
accounting techniques to smooth earnings. And it is a big question on how to confirm that reported earnings
are persistent or smoothed. One way to deal with such issue is to test relationships between earnings and
financial characteristics of the firms. This paper, using panel regression techniques on a sample of 23 Vietnamese
commercial banks in 10 years, has proved that future earnings has a significant relationship with current earnings
but is unexplainable by banks’ financial characteristics and business cycle. In the other words, the reported profit
is not persistent but smoothed; thus do not faithfully represents the financial health and performance of the banks.
This trend will harm the sustainable development of the banking system and should be addressed soon by the
policy makers as well as other stakeholders