Earnings Management in Health Plan Companies in Brazil

Abstract

Objective - This research studied whether health plan companies (HPCs) use earnings management to avoid reporting a low indicator of sustainability in the market (IDSM). In Brazil, the National Agency of Supplementary Health (ANS) regulates HPCs. The agency established a qualification program for these firms, in which it monitors them based on a set of indicators. Managers may have incentives to use earnings management (for example, refraining from showing signs of administrative abnormality), obtaining indices that meet the requirements of the ANS qualification program, escaping the regulator’s intervention. Methodology - The measurement adopted to identify the use of earnings management was the Modified Jones model. Data were collected from the online ANS website and cover the period from 2012 to 2017. Results - The results showed that the HPCs engaged in earnings management to avoid reporting low IDSM, influencing the perception about the companies when observing the set of indicators used to evaluate them. Contributions - The study shows health plan clients the circumstances in which the companies of this segment operate, subsidizing their decision regarding the purchase or changing of health plans. Also, the research encourages regulators to improve the evaluation of economic and financial risks around HPCs’ businesses.