Abstract
This paper has the purpose to present empirical evidence that Brazilian public companies practice earnings management as a response to capital market incentives. After a brief literature review, it will be documented evidences that Brazilian public companies manage their earnings to: a) Avoid reporting losses; b) Sustain recent performance and c) Income smoothing. The study period of the empirical analysis is between 1995 and 1999, and the most important source of information is Economatica. As part of the research, It was implemented a multiple regression model to estimate discretionary accruals, that are used as proxies for earnings management. In terms of performance in the stock market, it was documented that companies that artificially manage their results, towards income decreasing or income increasing, can fool the market in the short run, but in the long run the investors realize the procedure, and their stocks will underperform the market.
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