Income smoothing: a study of the health sector’s credit unions

Valéria Gama Fully Bressan,Douglas Coelho de Souza,Aureliano Angel Bressan

doi:10.7819/rbgn.v0i0.2617

Valéria Gama Fully Bressan, Douglas Coelho de Souza + Show 1 more

Open Access

https://doi.org/10.7819/rbgn.v0i0.2617

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Abstract

Purpose – The aim of this study was to verify whether the credit unions affiliated to Brazilian Confederation of Central Cooperatives (UNICRED) manage their accounting results, in order to reduce the variability of the institution’s returns and transmit a sense of solidity to its members. Design/methodology/approach – The method adopted was the Classic Linear Regression Model with Panel Data, estimated by Feasible Generalized Least Squares for fixed effects and corrections for heteroscedasticity. The sample was made up of 113 credit unions affiliated to UNICRED systems, over the 2001-2011 period, and data was made available by Central Bank of Brazil. Findings – The analysis, carried out through non-discretionary results on credit operations in order to explain the changes in net expenses of provision on credit operations, indicated there was smoothing of results. Thus, we can infer that the credit unions affiliated to UNICRED make use of earnings management in the income smoothing modality. Originality/value – This study contributes to the issue of Accounting Results Management, and corroborates that there are indications that, in the occurrence of higher non-discretionary results, credit unions tend to maximize provisions. Similarly, in the occurrence of lower non-discretionary results, they tend to minimize provisions, making evident the search for smaller variability in results, thus signaling mitigation of risks.

Highlights

Credit unions are financial institutions formed through a cooperative society, with the purpose of providing financial services to their members, such as, for instance, the collection of demand and time deposits, checks, lending and the provision of collection services, and of custody, among others
In December 2013, a total 1,154 credit unions were introduced in Brazil, of which 888 belonged to the systems of the largest Brazilian credit unions, which are the Cooperative Credit System of Brazil (SICOOB), the Cooperative Credit System (SICREDI), Brazilian Confederation of Central Cooperatives (UNICRED), Cooperative Urban Credit System (CECRED), the Cooperative System of Solidarity Economy (CONFESOL), and Uniprime Norte do Paraná (UNIPRIME) (Portal do Cooperativismo de Crédito, 2015)
The above table presents an average of 0.0056 (0.56%) in the dependent variable VDLoc, with standard deviation equal to 0.0361, resulting in a high coefficient of variation in the value of 6.4278. This indicates a large heterogeneity of this variable in credit unions affiliated to UNICRED over the 2001-2011 period, which will be used to verify the smoothing of results

Summary

Introduction

Credit unions are financial institutions formed through a cooperative society, with the purpose of providing financial services to their members, such as, for instance, the collection of demand and time deposits, checks, lending and the provision of collection services, and of custody, among others. In December 2013, a total 1,154 credit unions were introduced in Brazil, of which 888 belonged to the systems of the largest Brazilian credit unions, which are the Cooperative Credit System of Brazil (SICOOB), the Cooperative Credit System (SICREDI), Brazilian Confederation of Central Cooperatives (UNICRED), Cooperative Urban Credit System (CECRED), the Cooperative System of Solidarity Economy (CONFESOL), and Uniprime Norte do Paraná (UNIPRIME) (Portal do Cooperativismo de Crédito, 2015) These institutions do not have the purpose of earning profits, they must render accounts and provide their information to regulators, such as the Central Bank of Brazil (BACEN) and central cooperatives, in the case of individual credit unions. According to Maia, Bressan, Lamounier and Braga (2013), these obligations may pressure credit unions to manage their results in order to minimize the effect of fluctuations, since highly volatile results may indicate excessive risk exposure

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