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Avoiding reporting losses: an empirical study of earnings management via operating decisions

Revista contabilidade & finanças, 2015-09, Vol.26 (69), p.247 [Peer Reviewed Journal]

COPYRIGHT 2015 Departamento de Contabilidade - FEA/USP ;Copyright Universidade de São Paulo, FEA, Departmento de Contabilidade e Atuária Sep/Dec 2015 ;ISSN: 1519-7077 ;EISSN: 1808-057X ;DOI: 10.1590/1808-057x201501070

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  • Title:
    Avoiding reporting losses: an empirical study of earnings management via operating decisions
  • Author: dos Reis, Elizio Marees ; Lamounier, Wagner Moura ; Bressan, Valeria Gama Fully
  • Subjects: Accounting ; Capital markets ; Cash flow ; Corporate profits ; Disclosure ; Earnings management ; Earnings per share ; Financial statements ; Operating costs ; Regression analysis ; Stockholders ; Studies ; Working capital
  • Is Part Of: Revista contabilidade & finanças, 2015-09, Vol.26 (69), p.247
  • Description: The aim of this paper is to verify whether Brazilian companies listed on the BM&FBOVESPA used earnings management via operating decisions, when faced with reporting unfavourable results, in order to avoid disclosing losses. Using panel data covering years from 2008 to 2013 in estimated regression models, the paper focuses on three ways of manipulating financial results through operational decisions: by manipulating sales; by reducing selling, general and administrative expenses (SG&A); and by increasing production to report lower costs of goods sold. The results show that the companies did use SG&A to avoid reporting losses, but did not manipulate sales or levels of production for such purposes. The evidence presented suggests that in Brazil managers are only able to manipulate operational activities by reducing operating expenses (SG&A), probably due a lack of flexibility in the production process and the cash flow constraints faced by Brazilian companies. From a users' perspective, this paper finds that companies do use earnings management via operating decisions to avoid disclosing losses to capital markets, which is consistent with the Prospect Theory. Keywords: earnings management, operating decisions, panel data.
  • Publisher: São Paulo: Departamento de Contabilidade - FEA/USP
  • Language: Spanish;English
  • Identifier: ISSN: 1519-7077
    EISSN: 1808-057X
    DOI: 10.1590/1808-057x201501070
  • Source: Directory of Open Access Journals
    ProQuest Central
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