Debt covenant and financial intermediation: how debt characteristics shape earnings management in Vietnam

Purpose This study refines debt covenant, financial intermediation and information economics theories by examining how debt maturity and sources shape earnings management (EM) in emerging markets. Design/methodology/approach Using Vietnam’s bank-dominated economy, we develop a theoretical framework integrating debt structure, monitoring mechanisms and temporal dynamics to explain heterogeneous reporting incentives. Findings Short-term debt drives income-increasing manipulation, while long-term debt fosters income-decreasing strategies. Contrary to financial intermediation theory’s predictions, bank debt increases rather than decreases EM. Originality/value Unlike prior studies focusing on single-theoretical perspectives or developed markets, we integrate multiple theories to reveal maturity-specific incentives and earnings persistence dynamics. Critically, we document that bank monitoring effects reverse, whereby bank debt increases rather than decreases EM, contradicting financial intermediation theory’s predictions and specifying institutional scope conditions for the theory’s applicability.