The Consolidation Trap: Empirical Evidence From Differences in Earnings Management Incentives and Practices in Brazil

Informações

Código: CON1983
Divisão: CON - Contabilidade
Tema de Interesse: CON-A - Contabilidade para Usuários Externos

Autores

José Elias Feres de Almeida, Guillermo Oscar Braunbeck, Fernanda Furuta, Luiz Nelson G. de Carvalho

Resumo

This paper investigates a particular scenario under the Brazilian Generally AcceptedAccounting Principles which require public companies to disclose individual financialstatements, related to the public entity itself (i.e. legal parent entity), together withconsolidated financial statements, which shall consolidate all entities controlled by a publiccompany (i.e. economic entity). Notwithstanding, different incentives for earningsmanagement can be identified in comparing legal and economic entities and their respectivefinancial statements. We tested two models of earnings management, Jones Modified with848 observations and KS with 694 observations for the same period 2000 to 2006. Ourresearch shows certain evidence on income-decreasing expense accounting choices in legalentities financial statements, consistent with the hypothesis of management for lowering taxburden in a particular scenario of interference of taxation on corporate accounting. On theother hand, evidence from expense accounting suggests income-increasing choices inconsolidated figures and financial statements, consistent with the political cost and capitalmarket pressure hypothesis. These results can contributes to understand the real impact oflegal system in firms accounting.

Abrir PDF