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Earnings management and macroeconomic crises

Earnings management and macroeconomic crises Purpose– The purpose of this paper is to investigate whether macroeconomic crises are a motivational factor for earnings management practices by the companies listed in the capital markets of Brazil and the USA. Design/methodology/approach– The sample consisted of 7,932 firm-quarter observations from listed Brazilian companies and 99,931 from listed US companies, covering a 13-year period (1998-2010). The authors developed regression models for the panel data, taking into account discretionary accruals as an earnings management proxy (dependent variable), while crises were regarded as a macroeconomic factor (dummy variable of interest). Also considered were return on assets, market-to-book ratio, size, leverage, foreign direct investment, income taxes, quarters, and sectors, which were treated as control variables. Findings– The results corroborate the conceptual issues involved in undertaking this study, and they demonstrate that in periods of macroeconomic crises, companies are more motivated to employ earnings management practices both in Brazil and in the USA. Originality/value– Unlike previous studies, the model developed in our research includes multiple macroeconomic crises simultaneously. Furthermore, it was applied in two markets at different stages of development and operating in distinct institutional contexts, which indicates its viability for replication for a large number of countries. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting in Emerging Economies Emerald Publishing

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
2042-1168
DOI
10.1108/JAEE-07-2013-0037
Publisher site
See Article on Publisher Site

Abstract

Purpose– The purpose of this paper is to investigate whether macroeconomic crises are a motivational factor for earnings management practices by the companies listed in the capital markets of Brazil and the USA. Design/methodology/approach– The sample consisted of 7,932 firm-quarter observations from listed Brazilian companies and 99,931 from listed US companies, covering a 13-year period (1998-2010). The authors developed regression models for the panel data, taking into account discretionary accruals as an earnings management proxy (dependent variable), while crises were regarded as a macroeconomic factor (dummy variable of interest). Also considered were return on assets, market-to-book ratio, size, leverage, foreign direct investment, income taxes, quarters, and sectors, which were treated as control variables. Findings– The results corroborate the conceptual issues involved in undertaking this study, and they demonstrate that in periods of macroeconomic crises, companies are more motivated to employ earnings management practices both in Brazil and in the USA. Originality/value– Unlike previous studies, the model developed in our research includes multiple macroeconomic crises simultaneously. Furthermore, it was applied in two markets at different stages of development and operating in distinct institutional contexts, which indicates its viability for replication for a large number of countries.

Journal

Journal of Accounting in Emerging EconomiesEmerald Publishing

Published: May 3, 2016

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