The extension of the modified Jones model with control variables: empirical findings from the Brazilian capital market

Abstract

The development of accruals models in earnings managements allowed several studies in this area. However, regarding these approaches revealed their weakness related to the control of the sample diversity. In this context, the primary purpose of this study was to analyse how the inclusion of control variables proposed in the literature could improve the robustness of the modified Jones model. To identify the most prominent control variables were reviewed 84 manuscripts indicating us the six common control variables employed in accruals models with this purpose: return on assets (ROA), book to market (BTM), industry, financial leverage, size, and timeliness. From this review, we tested the controls in a panel-data with a sample of 8,600 firm-observations collected from the Brazilian public companies on a quarterly frequency between 1999 and 2009. Our results indicate that ROA, BTM, market segment and timeliness were statistically significant, showing an increase in the robustness of findings.