Abnormal Production Activity in an Emerging Market: Short-Term Accounting Gains, Inventory Accumulation, and Cash-Flow Consequences

This study examines the economic consequences of abnormal production activity among Vietnamese listed manufacturing firms by investigating its effects on accounting performance, inventory accumulation, and future operating cash flows. Using an unbalanced panel of 243 firms over the period 2016–2024, abnormal production activity is estimated using the normal production cost model [2], and the hypotheses are tested with firm fixed-effects regressions. The results show that abnormal production activity improves short-term accounting performance but does not enhance longer-term performance, operating cash flows, or market-based performance. It also increases subsequent inventory intensity, while firms with high inventory intensity experience weaker future operating cash flows. These findings suggest that the accounting benefits of abnormal production activity are temporary and accompanied by inventory-related operating costs, providing new evidence on the economic consequences of production-based real earnings management in an emerging market.