This study strives to describe how the nexus between capital structure (CAS) and firm performance (FIP) changes with and without earnings management (EAM), which previous studies have not fully addressed. For this purpose, we divide the FIP into discretionary performance (DIP) and non-discretionary performance (NDIP). Subsequently, we examine the effect of CAS on both with each studied separately to recognize the conceptual drivers in the nexus between CAS and FIP. We use the dataset of firms listed on Ho Chi Minh Stock Exchange (HOSE) during the period from 2018 to 2022. Our findings reveal that there is a negative and noteworthy impact of CAS proxied by leverage on both DIP and NDIP, which is in line with trade-off theory (TOT) and pecking-order theory (POT). Because non-discretionary accruals (NDA) play an important role in EAM, firm action is consistent with TOT or POT and, thus, this study suggests dividing EAM into discretionary accruals (DA) and NDA to test CAS theories. Additionally, Vietnamese firms use EAM to lessen the negative effect of CAS and firm size. Finally, besides the theoretical contributions, the findings of this study have important empirical implications for managers, shareholders and other stakeholders.
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