Abstract
This study aims to analyze the relationship between cost asymmetry (Sticky Costs) behavior and earnings management practices of Brazilian companies. The methodology refers to descriptive, documentary and quantitative research. The sample comprised 160 Brazilian companies listed on BM&FBovespa between 2008 and 2017. Multiple linear regression models were used to analyze the data. We observed that accounting profit is affected by sticky costs behavior and by earnings management practices. Total accruals and part of earnings management are explained by costs asymmetric behavior. This paper contributes to the current research on the discussion that part of earnings management can be due to sticky costs. In addition, the results show that the Dechow, Sloan and Sweeney (1995) model could consider the asymmetry of costs as an interference variable on total accruals, in order to better estimate the discretionary accruals.
Highlights
In the last decade, with the driving study by Anderson, Banker, and Janakiraman (2003), research in managerial accounting have turned to the analysis of the phenomena that interfere in the asymmetric behavior of costs, mainly regarding the occurrence of changes in the levels of organizational activities.Weiss (2010) found that firms with asymmetric costs show a greater decline in earnings when costs increase more than sales growth, and when sales reduce and costs decrease to a lesser extent
When testing the influence of sticky costs on earnings management (EM), the results indicated that sticky costs had a positive impact on discretionary accruals
We concluded that the sticky costs caused part of earnings management and, the discretionary accruals estimation models may present inconsistency in the results that determine the opportunistic behavior of managers and companies
Summary
With the driving study by Anderson, Banker, and Janakiraman (2003), research in managerial accounting have turned to the analysis of the phenomena that interfere in the asymmetric behavior of costs, mainly regarding the occurrence of changes in the levels of organizational activities. The behavior of costs, analyzed by the prism of financial accounting, is based on the incentives of managers to manage the slack in resources in order to meet profit targets In this way, the analysis of another important factor that may have an association with this sticky costs financial view, which refers to the practice of earnings management, is delimited. Banker et al (2016) analyzed the sticky costs in the traditionally used models to detect accounting conservatism, establishing suggestions to correct problems of asymmetry of costs in established models, such as that by Basu (1997) In this way, due to the motivation of the interconnection between the research topics on managerial and financial accounting, and even with respect to the quality of accounting information (BANKER et al, 2006, WEISS, 2010, KAMA; WEISS, 2016), the present research fills the gap of analysis of the relationship between the sticky costs and the practice of earnings management. The evidence pointed out the accounting profit behaving according to the asymmetry of costs as well as EM, and how the two phenomena of distinct areas may be intertwined
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