The Impact of Executive Political Connections and the Moderating Role of Audit Quality on Earnings Management Behavior in Listed Real Estate Firms in Vietnam

In Vietnam's real estate sector, where informal institutions like political connections are exceptionally influential, this study addresses a critical governance paradox: the effectiveness of formal monitoring mechanisms, such as high-quality audits, in constraining the earnings management behavior driven by these connections. The main objective of the study is to clarify the complex interaction between formal (audit) and informal (political connections) governance mechanisms, while also considering the differences in this impact between state-owned and private enterprises. By employing a panel dataset of 677 firm-year observations from 71 listed firms over the 2015-2024 period, the study applies a Fixed Effects Model (FEM) with an interaction term, combined with robust checks. The empirical results show that political connections have a positive and statistically significant relationship with earnings management, whereas audit quality (represented by the Big 4) has a constraining effect. However, the most core and significant contribution of the study is that the moderating role of audit quality is not statistically significant for the full sample. Deeper analysis by ownership type reveals a heterogeneous mechanism of impact: while the monitoring role of Big 4 audits is almost completely neutralized in state-owned enterprises, it exerts a strong effect and nearly eliminates the negative impact of political connections in private enterprises. From this, we conclude that the effectiveness of formal governance mechanisms is not absolute but depends heavily on the institutional context and ownership structure, highlighting that high-quality audit is an effective "check" against risks from political capital, but primarily in the private sector.