Resumo

This research studied whether health insurance companies (HICs) use earnings management to avoid reporting a low performance measured by the IDSM (indicator of sustainability in the market) In Brazil. The National Agency of Supplementary Health (ANS) established a qualification program for these firms, monitoring them based on a set of indicators. To refrain from showing signs of abnormality, managers may have incentives to use earnings management to obtain indices that meet the requirements of the ANS qualification program.

Thus, this research seeks to answer the following question: Do Brazilian HICs use earnings management to avoid reporting a low performance indicator of sustainability in the market (IDSM)? The objective of this study was to observe whether HICs engage in earnings management through discretionary accruals or operational decisions, refraining from reporting low indicators of sustainability in the market.

Although regulation is generally perceived as a mechanism that limits opportunistic behaviour, in some particular situations, it may have the opposite effect. Regulations generally aim at enhancing management incentives to improve performance; such incentives may create a pressure to manage earnings (El-Diri, 2018). Firms may manage earnings in different ways under the pressure of regulation. Regulatory investigations or new regulatory projects drive firms to manage discretionary accruals downwards in order to demotivate regulators from issuing strict norms.

The methods used were hypothetical-deductive and quantitative, using secondary and longitudinal data. The research was empirical, with a descriptive objective, having as the field of studies the HICs. The population consists of all HICs with active enrollment in the ANS, and a probabilistic sample was selected in the period from 2012 to 2018. The measurement used to identify earnings management, through discretionary accruals, was the Jones and Modified Jones models and, to estimate the abnormal behaviors of operational decisions, the one described by Roychowdhury.

The results indicate, with strong statistical support, that when we increase the discretionary accruals there is an increase of the HIC performance. These findings corroborate the hypothesis that earnings management practices are used to increase these indicators and thus improve the perceptions of regulators and users of the economic and financial vitality of the HICs. A positive and significative coefficient provide evidence the increase in earnings management is followed by an increase in the HIC performance.

In the case of ANS’s regulation, the use of performance indicators (IDEF and IDSM) is not a good mechanism that limits opportunistic behaviour, but just the opposite, as in case of HICs with low indicators, there is an incentive to manipulate earnings. Regulations in their quest to monitor performance create management incentives to manage earnings (El-Diri, 2018). Firms may manage earnings in different ways under the pressure of regulation, such as misrepresenting income increasing or decreasing.

El-Diri, M. (2018). Introduction to earnings management. New York, NY: Springer Berlin Heidelberg.