Abstract
ABSTRACT The aim of this paper is to analyze earnings management (EM) surrounding debenture issues of companies listed on the BM&FBOVESPA. EM is an intentional intervention in external financial reports in order to obtain some private gain. This practice is especially important at the time of issuing debentures because if earnings are inflated, investors may pay an artificially high price. To measure earnings management, current discretionary accruals were used as a proxy, based on the Modified Jones and Modified Jones with ROA econometric models. All of the regressions considered the fixed effects of the companies and the time series effects of the analyses. Evidence was found that companies inflate their financial results in the issuing period in order to positively influence their investors. The results suggest that there is EM in the quarter preceding the issue (t = - 1), indicating the influence that investors may have been under when making the decision to invest in debentures from these companies. In addition, it was verified that companies with higher debt, profitability, and sales growth ratios have higher levels of earnings management. The reputation of the auditor was not statistically significant regarding reductions in the level of management. The results also show that companies listed on Level II and New Market had higher levels of management when considering the Modified Jones with ROA model. Therefore, it can be concluded that there is a greater level of earnings management in companies that issue debentures in the period preceding the event. Finally, the variable that is directly related to the level of earnings management is sales growth.
Highlights
Company accounting reports contain information of a financial and economic nature, which can undergo adjustments carried out by managers
This paper studies the earnings management dynamic surrounding the event of issuing debt securities by companies listed on the BM&FBOVESPA, with the main aim of evaluating Earnings Management (EM) practices in debenture issuing periods, as well as identifying in which debenture issuing period this intervention is carried out
3.1 Population and Sample The database used in this paper is taken from the National Debentures System (Sistema Nacional de Debêntures - SND), accessible via the website linked to the Brazilian Association of Financial and Capital Market Entities (Associação Brasileira das Entidades do Mercado Financeiro e de Capitais - ANBIMA)
Summary
Company accounting reports contain information of a financial and economic nature, which can undergo adjustments carried out by managers. The possibility of exercising discretion allows managers freedom in measuring company accounting results, which is known as Earnings Management (EM). These interventions in results occur within accounting norms and principles, based on flexibility regarding the choice of certain accounting procedures. If shareholders cannot identify the effect of earnings management in financial statements, their interpretation regarding company performance may be mistaken. This bias will be revealed in future results, when company performance turns out to be very different from the estimations that were made (Cupertino, 2013)
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
