Abstract

Purpose: The purpose of this study is to assess whether banks in Latin America make use of unrealized gains and losses through financial instruments, recorded as other comprehensive income, when engaging in earnings management and capital resource allocation.
 Methodology: Empirical tests were conducted that were based on data from 75 banks in 13 countries in Latin America, (from 2008 to the first quarter of 2020), and which took account of the panel data model estimates with fixed effects, devised by Barth et al. (2017).
 Results: The estimates obtained revealed that, generally speaking, there is no empirical evidence that these banks made use of unrealized gains and losses through financial instruments for the purposes of earnings management. However, the empirical results showed that banks with lower capital ratios (i.e. with a lower quintile) use these profit and loss statements through the AFS or FVOCI measurements, both as a capital and earnings management mechanism.
 Research Contributions: The study seeks to make a significant addition to the accounting literature on management results, which is often restricted to discretionary accruals, by evaluating earnings and capital management practices through operational activities - in the case of capital management, through the reduction of risk-weighted assets (RWA).

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