Earnings management by health insurance companies in Brazil

Abstract

PurposeThis study examines whether Brazilian health insurance companies (HICs) engage in earnings management through discretionary accruals or operational decisions by refraining from reporting a low indicator of sustainability in the market (IDSM).Design/methodology/approachThe study used the Jones and Modified Jones models to identify earnings management through discretionary accruals and used the model described by Roychowdhury to estimate the abnormal behaviors of operational decisions. Data covering 2012 to 2018 were collected from the ANS website.FindingsThe results show that HICs engaged in earnings management to avoid reporting a low IDSM. The findings should help health insurance clients make decisions regarding the purchase or change of health insurance. The findings should also encourage regulators to improve their evaluation of the economic and financial risks around HICs.Originality/valueThe National Agency of Supplementary Health (ANS) established a qualification program for HICs, monitoring them based on a set of indicators. Managers may have an incentive to use earnings management to obtain indices that meet the requirements of the ANS qualification program in order to avoid showing signs of abnormality.

Technical Reserves Audit Challenges and Opportunities with the Emergence of ERP: Investigating Egyptian Auditors Perceptions

“…Accordingly, there is a growing debate in the literature that relates technical reserve manipulations with earnings management (Berry-Stölzle et al, 2018;Paterson, 2000, 2001;Martinez and Carvalho, 2022;Nwoye et al, 2021;Song, 2018). Insurance companies, including notable examples like the American International Group, Inc (AIG), have not been immune to accounting scandals involving manipulations aimed at meeting earnings targets (Eckles and Halek, 2010;Gaganis et al, 2016).…”

“…The auditing process (external and internal), in theory, serves as a monitoring mechanism to mitigate management's incentives to manipulate reported earnings, detect earnings manipulation, and identify misstatements (Abass et al, 2022;Nwoye et al, 2021;Puzić, 2020). Numerous studies investigated the association between earnings management and audit quality, as earnings manipulation represent one of the most debated topics in academia and practice (Alhassan, 2018;Berry-Stölzle et al, 2018;Gaganis et al, 2016;Gaver and Paterson, 2004;Martinez and Carvalho, 2022;Nwoye et al, 2021;Song, 2018).…”

“…Most of the studies that investigated the external auditors role in insurance companies in general or the role of the external auditors in technical reserves manipulations and calculations as it was found to be used implicitly as a way of earning management by many companies (Alhassan, 2018;Beaver et al, 2003;Berry-Stölzle et al, 2018;Gaganis et al, 2016;Gaver and Paterson, 2000Martinez and Carvalho, 2022;Nwoye et al, 2021;Song, 2018). While other studies concentrated on external auditors' role in the process of reviewing ERP systems (Kanellou and Spathis, 2011;Shin et al, 2013;Silva et al, 2023).…”

Investigating earnings management practices and the role of the board and committees in emerging markets: Evidence from Malaysian public companies

“…The fundamental role of audit and board composition as governance mechanisms is to decrease asymmetry information between shareholders and managers (Gerged et al., 2021; Mardjono & Chen, 2020; Widagdo et al., 2021). It is expected that these governance mechanisms' successful regulate the levels of EM (Alhadab & Al‐Own, 2019; Martinez & Carvalho, 2021; Martinez & Moraes, 2017). The control mechanisms are interconnected, and the relationship between them is based on agency theory.…”

Earnings Management in the hospitality industry: A systematic literature review

“…EM seems to be industry-dependent (Beatty, Ke & Petroni, 2002;Dimitropoulos, 2011;Leone & Van Horn, 2005;Martinez & Carvalho, 2022), with the hospitality sector offering an interesting setting to explore this issue. This industry frequently operates under management contracts (Turner & Guilding, 2011;Xiao et al, 2012), presents a high proportion of tangible assets and high fixed costs (Chen, 2010;Turner & Guilding, 2011), has high debt-to-equity ratios and financial risk (Li & Singal, 2019;Singal, 2015;Tang & Jang, 2007) and makes significant expenditures on human resources (Jiao & Lu, 2019;Shin & Hong, 2020).…”