Earnings Management and Quarterly Discretionary Accruals Level in the Brazilian Stock Market

Rodrigues, Rodolfo Maia Rosado Cascudo; Melo, Clayton Levy Lima de; Paulo, Edilson

doi:10.15728/bbr.2019.16.3.6

Rodolfo Maia Rosado Cascudo Rodrigues ^†† Universidade Federal do Rio Grande do Norte, Natal, RN, Brazil E-mail: rmrcr@hotmail.com

Universidade Federal do Rio Grande do Norte, Natal, RN, Brazil

http://orcid.org/0000-0003-0415-7526

Clayton Levy Lima de Melo ^ΩΩ Universidade Federal do Rio Grande do Norte, Natal, RN, Brazil E-mail: clayton_levy@hotmail.com

Universidade Federal do Rio Grande do Norte, Natal, RN, Brazil

http://orcid.org/0000-0003-4397-115X

Edilson Paulo ^¥¥ Universidade Federal do Rio Grande do Sul, Porto Alegre, RS, Brazil E-mail: edilson.paulo@ufrgs.br

Universidade Federal do Rio Grande do Sul, Porto Alegre, RS, Brazil

http://orcid.org/0000-0003-4856-9039

† Universidade Federal do Rio Grande do Norte, Natal, RN, Brazil E-mail: rmrcr@hotmail.com

Ω Universidade Federal do Rio Grande do Norte, Natal, RN, Brazil E-mail: clayton_levy@hotmail.com

¥ Universidade Federal do Rio Grande do Sul, Porto Alegre, RS, Brazil E-mail: edilson.paulo@ufrgs.br

Total of listed companies on the B3	330
(-) Financial Companies	-63
(-) Companies with missing data	-160
(=) Total sample companies	107
(*) Amount of quarter under review	24
(=) Total observations (N)	2568

Control	Variable	Notation	Calculation method	Previous studies
Size	Total Assets	LnTA	Natural Logarithm of Total Assets	Almadi and Lazic (2016)ALMADI, M.; LAZIC, P. CEO incentive compensation and earnings management: The implications of institutions and governance systems. Management Decision, v. 54, n. 10, p. 2447-2461, 2016.; Hribar and Nichols (2007)HRIBAR, P.; NICHOLS, D. C. The Use of Unsigned Earnings Quality Measures in Tests of Earnings Management. Journal of Accounting Research, v. 45, n. 5, p. 1017-1053, 2007.; Joia and Nakao (2014)JOIA, R. M.; NAKAO, S. H. Adoção de IFRS e gerenciamento de resultado nas empresas de capital aberto. Revista de Educação e Pesquisa em Contabilidade, v. 8, n. 1, p. 22-38, 2014.; Klein (2002)KLEIN, A. Audit committee, board of director characteristics, and earnings management. Journal of Accounting and Economics, v. 33, p. 375-400, 2002.; Marra, Mazzola and Prencipe (2011)MARRA, A.; MAZZOLA, P.; PRENCIPE, A. Board monitoring and earnings management pre- and post-IFRS. The International Journal of Accounting, v. 46, p. 205-230, 2011.; Murcia and Wuerges (2011)MURCIA, F. D.; WUERGES, A. Escolhas contábeis no mercado brasileiro: divulgação voluntária de informações versus gerenciamento de resultados. Revista Universo Contábil, v. 7, n. 2, p. 28-44, 2011.; Rezende and Nakao (2012)REZENDE, G. P.; NAKAO, S. H. Gerenciamento de resultados e a relação com o lucro tributável das empresas brasileiras de capital aberto. Revista Universo Contábil, v. 8, n. 1, p. 06-21, 2012.; Rodrigues Sobrinho, Rodrigues and Sarlo Neto (2014)RODRIGUES SOBRINHO, W. B.; RODRIGUES, H. S.; SARLO NETO, A. Dividendos e accruals discricionários: um estudo sobre a relação entre a política de distribuição de dividendos e a qualidade dos lucros. Revista Contemporânea de Contabilidade, v.11, n.24, p.03-24, 2014.; Xie, Davidson and Dadalt (2003)XIE, B.; DAVIDSON, W. N.; DADALT, P. J. Earnings management and corporate governance: the role of the board and the audit committee. Journal of Corporate Finance, v. 9, p. 295-316, 2003..
Performance	Return on Assets	ROA	Net Income divided by Total Assets	Call et al (2014)CALL, A. C. et al. Short-term earnings guidance and accrual-based earnings management. Review of accounting studies, v. 19, p. 955-987, 2014.; Joia and Nakao (2014)JOIA, R. M.; NAKAO, S. H. Adoção de IFRS e gerenciamento de resultado nas empresas de capital aberto. Revista de Educação e Pesquisa em Contabilidade, v. 8, n. 1, p. 22-38, 2014.; Rodrigues Sobrinho, Rodrigues and Sarlo Neto (2014)RODRIGUES SOBRINHO, W. B.; RODRIGUES, H. S.; SARLO NETO, A. Dividendos e accruals discricionários: um estudo sobre a relação entre a política de distribuição de dividendos e a qualidade dos lucros. Revista Contemporânea de Contabilidade, v.11, n.24, p.03-24, 2014..
Operational Cash Flow	Operational Cash Flow	FCO	Operational Cash Flow	Barth, Landsman e Lang (2008)BARTH, M. E.; LANDSMAN, W. R.; LANG, M. H. International Accounting Standards and Accounting Quality. Journal of Accounting Research, v. 46, n. 3, p. 467-498, 2008.; Hribar and Nichols (2007)HRIBAR, P.; NICHOLS, D. C. The Use of Unsigned Earnings Quality Measures in Tests of Earnings Management. Journal of Accounting Research, v. 45, n. 5, p. 1017-1053, 2007.; Joia and Nakao (2014)JOIA, R. M.; NAKAO, S. H. Adoção de IFRS e gerenciamento de resultado nas empresas de capital aberto. Revista de Educação e Pesquisa em Contabilidade, v. 8, n. 1, p. 22-38, 2014.; Marra, Mazzola and Prencipe (2011)MARRA, A.; MAZZOLA, P.; PRENCIPE, A. Board monitoring and earnings management pre- and post-IFRS. The International Journal of Accounting, v. 46, p. 205-230, 2011.; Rodrigues Sobrinho, Rodrigues and Sarlo Neto (2014)RODRIGUES SOBRINHO, W. B.; RODRIGUES, H. S.; SARLO NETO, A. Dividendos e accruals discricionários: um estudo sobre a relação entre a política de distribuição de dividendos e a qualidade dos lucros. Revista Contemporânea de Contabilidade, v.11, n.24, p.03-24, 2014.; Teoh, Wong and Rao (1998)TEOH, S. H.; WONG, T. J.; RAO, G. R. Are Accruals during Initial Public Offerings Oportunistic? Review of Accounting Studies, v. 3, p. 175-208, 1998..
Growth	Sales growth	Growth	Percentage change in net revenue for the quarter in relation to the same quarter of the previous year	Barth, Landsman and Lang (2008)BARTH, M. E.; LANDSMAN, W. R.; LANG, M. H. International Accounting Standards and Accounting Quality. Journal of Accounting Research, v. 46, n. 3, p. 467-498, 2008.; Hribar and Nichols (2007)HRIBAR, P.; NICHOLS, D. C. The Use of Unsigned Earnings Quality Measures in Tests of Earnings Management. Journal of Accounting Research, v. 45, n. 5, p. 1017-1053, 2007.; Rodrigues Sobrinho, Rodrigues and Sarlo Neto (2014)RODRIGUES SOBRINHO, W. B.; RODRIGUES, H. S.; SARLO NETO, A. Dividendos e accruals discricionários: um estudo sobre a relação entre a política de distribuição de dividendos e a qualidade dos lucros. Revista Contemporânea de Contabilidade, v.11, n.24, p.03-24, 2014.; Teoh, Wong and Rao (1998)TEOH, S. H.; WONG, T. J.; RAO, G. R. Are Accruals during Initial Public Offerings Oportunistic? Review of Accounting Studies, v. 3, p. 175-208, 1998..
Leverage	Leverage	Lev	Total Current Liabilities plus Long-Term Liabilities divided by Total Shareholders' Equity	Almadi and Lazic (2016)ALMADI, M.; LAZIC, P. CEO incentive compensation and earnings management: The implications of institutions and governance systems. Management Decision, v. 54, n. 10, p. 2447-2461, 2016.; Call et al. (2014)CALL, A. C. et al. Short-term earnings guidance and accrual-based earnings management. Review of accounting studies, v. 19, p. 955-987, 2014.; Barth, Landsman and Lang (2008)BARTH, M. E.; LANDSMAN, W. R.; LANG, M. H. International Accounting Standards and Accounting Quality. Journal of Accounting Research, v. 46, n. 3, p. 467-498, 2008.; DeFond and Jiambalvo (1994)DEFOND, M. L.; JIAMBALVO, J. Debt covenant violation and manipulation of accruals. Journal of Accounting and Economics, v. 17, p. 145-176, 1994.; Marra, Mazzola and Prencipe (2011)MARRA, A.; MAZZOLA, P.; PRENCIPE, A. Board monitoring and earnings management pre- and post-IFRS. The International Journal of Accounting, v. 46, p. 205-230, 2011..

Variable	N	Mean	Standard Deviation	Minimum	Maximum
Ta_it	2568	-0.00819	0.07241	-1.48752	1.01662
R_it	2568	0.19572	0.14546	-0.00105	1.03456
AIm_it	2568	0.26896	0.20630	0.00041	0.94380
FCO_it	2568	0.01709	0.04291	-0.73954	0.51395
Resit	2568	0.00596	0.04918	-0.53073	1.07385
Res2_it	2568	12.30738	96.27033	0.00000	2976.10
ΔRes_it _-1	2568	0.00061	0.06250	-1.14253	1.09304
DΔRes_it _-1	2568	0.50896	0.50002	0.00000	1.00000
ΔRes_it_-1DΔRes_it*_-1	2568	-0.00972	0.04042	-1.14253	0.00000
TA_it-1	2568	-0.00818	0.07348	-1.48752	1.01662
AD_it absoluto	2568	0.03326	0.05745	0.00000	1.44679
Description	Value		Description	Value
VIF	1.40		Hausman test	0.0000
Shapiro-Wilk's test	0.0000		Chow test	0.0000
			Wald test	0.0000

TA_it	Coef.	Std. Error	t	P>\|t\|
R_it	0.0988	0.0643	1.54	0.128
AIm_it	-0.0245	0.0240	-1.02	0.310
FCO_it	-0.5142	0.1521	-3.38	0.001^* ***** Significant at 1%.
Res_it	0.4733	0.1437	3.29	0.001^* ***** Significant at 1%.
Res2_it	-0.0000	0.0000	-0.93	0.356
ΔRes_it _-1	0.0874	0.0347	2.52	0.013^ Significant at 5%.
DΔRes_it _-1	0.0043	0.0027	1.61	0.111
ΔRes_it-1DΔRes_it-1*	0.0538	0.0512	1.05	0.296
TA_it-1	-0.1663	0.0586	-2.84	0.005^* ***** Significant at 1%.
Constante	-0.0177	0.0112	-1.58	0.117
Descrição	Value		Description	Value
N	2568		R² within	0.2069
Grupos	107		R² between	0.0224
N por grupo	24		R² overall	0.1683
F-statistic	29.86
Prob > F	0.0000

DA_it absolute	N	Mean	Median	Minimum	Maximum	Standard Deviation
1T2012	107	0.03933	0.01988	0.00121	0.49382	0.06139
2T2012	107	0.03113	0.02016	0.00090	0.27347	0.04050
3T2012	107	0.02440	0.01555	0.00008	0.12813	0.02566
4T2012	107	0.04590	0.02408	0.00010	0.49780	0.06373
1T2013	107	0.03603	0.01663	0.00046	0.48215	0.06143
2T2013	107	0.03001	0.01997	0.00032	0.38768	0.04343
3T2013	107	0.03082	0.01706	0.00034	0.22766	0.04153
4T2013	107	0.03720	0.02729	0.00037	0.32255	0.04300
1T2014	107	0.02621	0.01306	0.00003	0.26630	0.04115
2T2014	107	0.02983	0.01924	0.00015	0.35919	0.04571
3T2014	107	0.03853	0.01893	0.00022	0.71851	0.08556
4T2014	107	0.03636	0.02506	0.00018	0.18758	0.03432
1T2015	107	0.02711	0.02307	0.00034	0.14784	0.02475
2T2015	107	0.02177	0.01549	0.00031	0.13583	0.02331
3T2015	107	0.04331	0.02786	0.00008	0.45844	0.06090
4T2015	107	0.04729	0.02164	0.00031	0.60850	0.08099
1T2016	107	0.02763	0.01706	0.00017	0.26415	0.03566
2T2016	107	0.02399	0.01529	0.00020	0.22457	0.03098
3T2016	107	0.02511	0.01420	0.00043	0.31844	0.03926
4T2016	107	0.05091	0.02240	0.00006	1.44679	0.15477
1T2017	107	0.02798	0.01512	0.00000	0.42020	0.04977
2T2017	107	0.03045	0.01778	0.00032	0.19651	0.03793
3T2017	107	0.03233	0.01938	0.00021	0.27597	0.04312
4T2017	107	0.03460	0.02251	0.00008	0.26378	0.04376

DA_it absolute	N	Mean	Median	Minimum	Maximum	Standard deviation
1T	642	0.03072	0.01704	0.00000	0.49382	0.04769
2T	642	0.02786	0.01757	0.00015	0.38768	0.03779
3T	642	0.03242	0.01825	0.00008	0.71851	0.05316
4T	642	0.04204	0.02382	0.00006	1.44679	0.08108

Variable	N	Mean	Standard Deviation	Minimum	Maximum
DA_it absolute	2568	0.03326	0.05745	0.00000	1.44679
LnTA	2568	8.48214	1.82963	2.75175	13.7446
ROA	2568	0.00531	0.04816	-0.56617	0.75588
FCO	2568	0.01709	0.04291	-0.73954	0.51395
Growth	2568	0.07992	0.81412	-25.61237	16.78596
Lev	2568	1.73143	11.79420	-322.51850	353.36640
Descrição	Value		Description	Value
VIF	1.38		Hausman Test	0.0150
Shapiro-Wilk Test	0.0000		Chow Test	0.0000
			Wald Test	0.0000

DA_it absolute	Coef.	Std. Error	T	P>\|t\|
Constant	0.2244	0.0892	2.52	0.013^ Significant at 5%.
DT2	-0.0024	0.0030	-0.80	0.423
DT3	0.0028	0.0037	0.76	0.447
DT4	0.0120	0.0045	2.70	0.008^* ***** Significant at 1%.
LnTA	-0.0230	0.0105	-2.19	0.031^ Significant at 5%.
ROA	0.1579	0.1026	1.54	0.127
FCO	0.0183	0.1243	0.15	0.883
Growth	-0.0000	0.0022	-0.02	0.981
Lev	0.0000	0.0000	0.77	0.444
Description	Value		Description	Value
N	2568		R² within	0.0400
Group	107		R² between	0.1104
N per group	24		R² overall	0.0331
F-statistic	5.67
Prob > F	0.0000

Hypotheses	Description	Result
H₁	Earnings management based on discretionary accruals in the fourth quarter is significantly higher than in the other three quarters.	Not rejected
H₂	Earnings management based on discretionary accruals in the first quarter is significantly different from the second and third quarter.	Not rejected
H₃	Earnings management based on discretionary accruals in the second and third quarters are not statistically different from each other.	Not rejected

\begin{matrix} {TA}_{it} = α + β_{1} R_{it} + β_{3} A {Im}_{it} + λ_{1} {FCO}_{it} + λ_{2} {Res}_{it} + λ_{3} {Res}_{it}^{2} + λ_{4} ∆ {Res}_{it - 1} + \\ λ_{5} D ∆ {Res}_{it - 1} + λ_{6} ∆ {Res}_{it - 1} * D ∆ {Res}_{it - 1} + λ_{7} {TA}_{it - 1} + Σ β Setor + ε_{it} \end{matrix}

[1] † Universidade Federal do Rio Grande do Norte, Natal, RN, Brazil E-mail: rmrcr@hotmail.com

Brasil

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Earnings Management and Quarterly Discretionary Accruals Level in the Brazilian Stock Market

ABSTRACT