Earnings management during the COVID-19 crisis: evidence from the Brazilian and American capital markets

Abstract

PurposeThe main purpose of this study is to evaluate whether the COVID-19 pandemic has stimulated earnings management among publicly traded companies in Brazil and the USA.Design/methodology/approachThe authors analyzed the above-mentioned effects based on 22,244 observations of Brazilian companies and 139,856 observations of American companies from 1998 to 2020. The proxy used to detect earnings management based on discretionary accruals (DAC) was obtained by using the Modified Jones Model (MJM) (Dechow et al., 1995), with adjustments suggested by Kothari et al. (2005). In accordance with previous studies (e.g. Brown et al., 2015; Enomoto et al., 2015; Galdi et al., 2020; Huang and Sun, 2017; Roychowdhury, 2006), the authors also employed a second proxy to detect earnings management through real activities associated with unusual losses for fixed assets (property, plant and equipment (PPE)).FindingsThe study’s findings indicate that the discretionary accruals of Brazilian companies varied in a more accentuated manner during the COVID-19 pandemic, making it possible to deduce that a recent history of economic depression may entail greater incentives for earnings management in an emerging economy. In addition, the authors verified that the effects of the current crisis on earnings management proxies denote a signal that is distinct from previous economic crises, which may be interpreted as an attempt to postpone the effects of the pandemic on financial statements, especially those of the Brazilian capital markets.Originality/valueUnlike previous crises, this pandemic has led to direct restrictions on a wide variety of economic segments rather than indirect contagion due to anomalies in the financial markets, making it a phenomenon with the characteristics of a quasi-natural experiment for studies related to the quality of accounting information. Considering that both Brazil and the USA provide an opportune economic contrast, given their discrepancies in terms of economic growth over the past two decades, the researchers believe that there is an unusual opportunity to understand how earnings management can be an incentive for managers in environments where crises arose from natural causes.

Guest editorial: Transparency, accountability and the role of control mechanisms during the COVID-19 pandemic: a future research agenda in the context of emerging economies

“…We received several submissions relating to earnings management, accounting and auditing practices during the COVID-19 pandemic, of which three were accepted for the special issue. da Silva Flores et al (2023) explore earnings management behaviour among publicly traded companies in Brazil and the United States of America during the COVID-19 pandemic. The paper notes that unlike previous crises, this pandemic has led to direct restrictions on a wide variety of economic segments, making it a phenomenon with the characteristics of a quasi-natural experiment for studies related to the quality of accounting information.…”

Pengaruh Penghindaran Pajak Dan Tata Kelola Perusahaan Terhadap Manajemen Laba Dengan Tanggung Jawab Sosial Sebagai Variabel Moderasi

“…Ruang lingkup bisnis mengalami perubahan terbesar selama 3 tahun terakhir akibat pandemi Covid-19 (Chen et al, 2023). Pandemi Covid-19 menyebabkan terbatasnya aktivitas perdagangan, sehingga terjadi penurunan kegiatan perekonomian dalam hal penawaran dan permintaan (Flores et al, 2023). Hal ini menyebabkan pasar keuangan negara berkembang mengalami pertumbuhan ekonomi yang lambat sehingga arus masuk modal dan sumber daya menjadi terbatas dalam mengatasi pandemi (Topcu & Gulal, 2020).…”

“…Hal ini berkaitan dengan perusahaan dalam memperoleh pembiayaan dengan suku bunga lebih rendah dari subsidi pemerintah (Crouzet & Tourre, 2021). Auditor dan pengguna informasi keuangan harus memberikan perhatian yang besar dan berhati-hati terhadap laporan keuangan, mengingat adanya kemungkinan prosedur yang tidak sepenuhnya sesuai dengan kualitas informasi akuntansi (Flores et al, 2023).…”

“…Selama beberapa waktu terakhir, manajemen laba mendapat banyak perhatian khusus karena praktik manipulasi dalam pelaporan keuangan (Wati & Malik, 2021). Terutama di negara berkembang, tindakan manajemen laba lebih sering terjadi dibandingkan dengan negara maju (Flores et al, 2023). Terdapat 2 jenis pengukuran manajemen laba yang kerap digunakan yaitu accrual based dan real activity based.…”

“…Salah satu komponen penting dalam meminimalkan manajemen laba adalah penerapan tata kelola perusahaan yang baik (Setiawan, 2018). Melalui mekanisme tata kelola perusahaan yang baik dapat menunjukkan penurunan tindakan manajemen laba (Flores et al, 2023). Tata kelola perusahaan dengan penerapan yang baik menjadi tindakan utama yang harus segera dilaksanakan terutama di negara berkembang seperti Asia (Indonesia, Thailand, Malaysia, dan Filipina) dikarenakan tata kelola perusahaan di negara-negara tersebut yang masih relatif buruk (Kusumawardhani, 2018).…”