Resumo

Unlike previous crises, COVID-19 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. This creates a research opportunity to seek to understand how companies from different economies reacted in terms of accounting disclosure to a crisis that affected them in a similar way.

The 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 United States.

During economic crises, it is usual for capital markets researchers, standard setters, and regulators to rely on financial statements to evaluate whether it is possible forecast business cycles (Davis-Friday & Gordon, 2005). The development of studies that seek to evaluate the qualitative statistics of accounting information during periods of crisis reveal important academic concern related to the utility of financial statements during economic recessions. In this regard, there is no widespread literature mapping how financial crises can create opportunities for earnings management practices.

Considering that Brazil and US provide an opportune economic contrast, given their discrepancies in terms of economic growth over the past two decades, we analyzed their Earnings Management levels based on 22,244 observations of Brazilian companies and 139,856 observations of American companies from 1998 to 2020. We used two proxies to detect potential earnings management practices. The first proxy consists of the discretionary accruals (DAC) obtained from the Modified Jones Model in accordance with Dechow et al. (1995), with adjustments suggested by Kothari et al. (2005).

Our 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, ensure that the effects of the current crisis on earnings management proxies denote a signal that is distinct from previous economic crises, it can be interpreted as an attempt to postpone the effects of the pandemic on financial statements, especially those of the Brazilian capital markets.

Understands that accounting information is used as micro-data of public interest in the formulation of economic and social policies during periods of crisis (e.g., Trombetta, 2019). However, governmental authorities need to understand that data from financial statements during periods of economic anomalies may be biased so that organizations achieve goals of particular interest to them such as securing financing with lower interest rates based on governmental subsidies (Crouzet & Tourre, 2020), by posting losses from underperforming investments that should have been recorded in previous years.

Crouzet, N., Tourre, F. (2020). Can the cure kill the patient? Corporate credit interventions and debt overhang. Dechow, P. M., Sloan, R. G. and Sweeney, A. P. (1995). Detecting earnings management. The Accounting Review, v. 70 (2), pp. 193-225 Kothari, S.P., Leone, A. J. and Wasley, C. E (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, v. 39 (1), pp. 163-197. Trombetta, M. (2019). Remembering the future: Reflections on accounting and public policy. Journal of Accounting Public Policy, v. 38 (1), A1-A6.