Management skills and the quality of accounting information in Brazil
DOI:
https://doi.org/10.16930/2237-766220243421Keywords:
Earnings smoothing, Earnings management, Managerial skill, Data envelopment analysis, AccrualsAbstract
This study aims to analyze managerial skills in the practice of earnings management via earnings smoothing and accruals in B3 companies. To this end, a quantitative and descriptive study was conducted using data from the Economática database, with a sample of 966 observations from 2010 to 2020. Demerjian et al.’s (2012) model was used to measure managerial skill. Its efficiency parameters are the manager’s characteristics in using resources to generate revenue. The models by Leuz et al. (2003) and McNichols (2002) were used to measure smoothing and levels of earnings management. The results showed that, on average, more skillful managers tend to smooth and manage earnings at higher levels than less skilled managers, indicating that in Brazil, on average, more skillful managers reduce the quality of Brazilian firms’ earnings. This paper contributes to the literature and fills a gap regarding managerial skills and the impact on the results of Brazilian companies. It shows that, in Brazil, managerial skill is associated with smoothing and earnings management practices and sheds light on interested parties regarding the influence of the profile of managers and their ability to influence the numbers released in the Brazilian market.
References
Aier, J. K., Comprix, J., Gunlock, M. T., & Lee, D. (2005). The financial expertise of CFOs and accounting restatements. Accounting Horizons, 19(3), 123-135. https://doi.org/10.2308/acch.2005.19.3.123 DOI: https://doi.org/10.2308/acch.2005.19.3.123
Baik, B., Chae, J., Choi, S., & Farber, D. B. (2013). Changes in operational efficiency and firm performance: A frontier analysis approach. Contemporary Accounting Research, 30(3), 996-1026. https://doi.org/10.1111/j.1911-3846.2012.01179.x DOI: https://doi.org/10.1111/j.1911-3846.2012.01179.x
Baik, B., Choi, S., & Farber, D. B. (2020). Managerial ability and income smoothing. The Accounting Review, 95(4), 1-22. https://doi.org/10.2308/accr-52600 DOI: https://doi.org/10.2308/accr-52600
Baik, B. O. K., Farber, D. B., & Lee, S. A. M. (2011). CEO ability and management earnings forecasts. Contemporary Accounting Research, 28(5), 1645-1668. https://doi.org/10.1111/j.1911-3846.2011.01091.x DOI: https://doi.org/10.1111/j.1911-3846.2011.01091.x
Beidleman, C. R. (1975). Income smoothing: The role of management: A reply. The Accounting Review, 50(1), 122-126. https://www.jstor.org/stable/244669
Baik, B., Brockman, P. A., Farber, D. B., & Lee, S. (2018). Managerial ability and the quality of firms’ information environment. Journal of Accounting, Auditing & Finance, 33(4), 506-527. https://doi.org/10.1177/0148558X17742820 DOI: https://doi.org/10.1177/0148558X17742820
Bertrand, M., & Schoar, A. (2003). Managing with style: The effect of managers on firm policies. The Quarterly Journal of Economics, 118, 1169-1208. DOI: https://doi.org/10.1162/003355303322552775
Brugni, T. V., Fávero, L. P. L., Silva Flores, E. da., & Beiruth, A. X. (2015). O vetor de causalidade entre lucro contábil e preço das ações: existem incentivos para a informação contábil seguir o preço no Brasil? Contabilidade Vista & Revista, 26(1), 79-103. https://www.redalyc.org/pdf/1970/197038251005.pdf
Carvalho, A. G. de., & Pennacchi, G. G. (2012). Can a stock exchange improve corporate behavior? Evidence from firms' migration to premium listings in Brazil. Journal of Corporate Finance, 18(4), 883-903. https://doi.org/10.1016/j.jcorpfin.2011.01.003 DOI: https://doi.org/10.1016/j.jcorpfin.2011.01.003
Cohen, D. A., & Zarowin, P. (2010). Accrual-based and real earnings management activities around seasoned equity offerings. Journal of Accounting and Economics, 50(1), 2-19. https://doi.org/10.1016/j.jacceco.2010.01.002 DOI: https://doi.org/10.1016/j.jacceco.2010.01.002
Dechow, P., Ge, W., & Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their determinants and their consequences. Journal of Accounting and Economics, 50(2-3), 344-401. https://doi.org/10.1016/j.jacceco.2010.09.001 DOI: https://doi.org/10.1016/j.jacceco.2010.09.001
Dechow, P. M., & Dichev, I. D. (2002). The quality of accruals and earnings: The role of accrual estimation errors. The Accounting Review, 77(s-1), 35-59. https://doi.org/10.2308/accr.2002.77.s-1.35 DOI: https://doi.org/10.2308/accr.2002.77.s-1.35
DeFond, M. L., & Park, C. W. (1997). Smoothing income in anticipation of future earnings. Journal of Accounting and Economics, 23(2), 115-139. https://doi.org/10.1016/S0165-4101(97)00004-9 DOI: https://doi.org/10.1016/S0165-4101(97)00004-9
Demerjian, P., Lev, B., & McVay, S. (2012). Quantifying managerial ability: A new measure and validity tests. Management Science, 58(7), 1229-1248. https://doi.org/10.1287/mnsc.1110.1487 DOI: https://doi.org/10.1287/mnsc.1110.1487
Demerjian, P., Lewis-Western, M., & McVay, S. (2020). How does intentional earnings smoothing vary with managerial ability? Journal of Accounting, Auditing & Finance, 35(2), 406-437. https://doi.org/10.1177/0148558X17748405 DOI: https://doi.org/10.1177/0148558X17748405
Demerjian, P. R., Lev, B., Lewis, M. F., & McVay, S. E. (2013). Managerial ability and earnings quality. The Accounting Review, 88(2), 463-498. https://doi.org/10.2308/accr-50318 DOI: https://doi.org/10.2308/accr-50318
Dou, Y., Hope, O. K., & Thomas, W. B. (2013). Relationship-specificity, contract enforceability, and income smoothing. The Accounting Review, 88(5), 1629-1656. https://doi.org/10.2308/accr-50489 DOI: https://doi.org/10.2308/accr-50489
Eigenstuhler, D. P., Dal Magro, C. B., & Mazzioni, S. (2023). Habilidade Gerencial e a Conformidade Contábil-fiscal: estudo cross-country. Revista Catarinense da Ciência Contábil, 22, e3341. https://doi.org/10.16930/2237-766220233341 DOI: https://doi.org/10.16930/2237-7662202333411
Francis, J., Huang, A. H., Rajgopal, S., & Zang, A. Y. (2008). CEO reputation and earnings quality. Contemporary Accounting Research, 25(1), 109-147. https://doi.org/10.1506/car.25.1.4 DOI: https://doi.org/10.1506/car.25.1.4
Francis, J., LaFond, R., Olsson, P., & Schipper, K. (2005). The market pricing of accruals quality. Journal of Accounting and Economics, 39(2), 295-327. https://doi.org/10.1016/j.jacceco.2004.06.003 DOI: https://doi.org/10.1016/j.jacceco.2004.06.003
Ge, W., & Kim, J. B. (2014). Real earnings management and the cost of new corporate bonds. Journal of Business Research, 67(4), 641-647. https://doi.org/10.1016/j.jbusres.2013.01.021 DOI: https://doi.org/10.1016/j.jbusres.2013.01.021
Huang, X. S., & Sun, L. (2017). Managerial ability and real earnings management. Advances in accounting, 39, 91-104. DOI: https://doi.org/10.1016/j.adiac.2017.08.003
Júnior, G. M., & Saito, R. (2004). Monitoramento interno e desempenho da empresa: determinantes de substituição de executivos em empresas de capital aberto no Brasil. Revista de Administração da Universidade de São Paulo, 39(4), 385-397.
Lafond, R. (2008). Discussion of CEO reputation and earnings quality. Contemporary Accounting Research, 25(1), 149-156. https://doi.org/10.1506/car.25.1.5 DOI: https://doi.org/10.1506/car.25.1.5
Lang, M., Lins, K. V., & Maffett, M. (2012). Transparency, liquidity, and valuation: International evidence on when transparency matters most. Journal of Accounting Research, 50(3), 729-774. https://doi.org/10.1111/j.1475-679X.2012.00442.x DOI: https://doi.org/10.1111/j.1475-679X.2012.00442.x
Leuz, C., Nanda, D., & Wysocki, P. D. (2003). Earnings management and investor protection: an international comparison. Journal of Financial Economics, 69(3), 505-527. https://doi.org/10.1016/S0304-405X(03)00121-1 DOI: https://doi.org/10.1016/S0304-405X(03)00121-1
Lunardi, M., Ferrari, A., & Klann, R. (2022). Habilidade gerencial e gerenciamento de resultados contábeis. Revista Contemporânea De Contabilidade, 19(51), 53-72. https://doi.org/10.5007/2175-8069.2022.e79278 DOI: https://doi.org/10.5007/2175-8069.2022.e79278
Martins, O. S., & Ventura Júnior, R. (2020). The influence of corporate governance on the mitigation of fraudulent financial reporting. Revista Brasileira de Gestão de Negócios, 22(1), 65-84. https://doi.org/10.7819/rbgn.v22i1.4039 DOI: https://doi.org/10.7819/rbgn.v22i1.4039
McNichols, M. F. (2002). Discussion of the quality of accruals and earnings: The role of accrual estimation errors. The Accounting Review, 77(s-1), 61-69. https://doi.org/10.2308/accr.2002.77.s-1.61 DOI: https://doi.org/10.2308/accr.2002.77.s-1.61
Ronen, J., Tzur, J., & Yaari, V. (2007). Legal insider trading, CEOs incentive, and quality of earnings. Corporate Governance and Control, 4(2), 210-219. DOI: https://doi.org/10.22495/cocv4i3c1p4
Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of Accounting and Economics, 42(3), 335-370. https://doi.org/10.1016/j.jacceco.2006.01.002 DOI: https://doi.org/10.1016/j.jacceco.2006.01.002
Santos, L. L. R. dos. (2020). Habilidade gerencial e a relação da remuneração dos executivos com o gerenciamento de resultados. [Dissertação de Mestrado, Universidade Federal de Pernambuco].
Schrand, C. M., & Zechman, S. L. (2012). Executive overconfidence and the slippery slope to financial misreporting. Journal of Accounting and Economics, 53(1-2), 311-329. https://doi.org/10.1016/j.jacceco.2011.09.001 DOI: https://doi.org/10.1016/j.jacceco.2011.09.001
Schipper, K., & Vincent. L. (2003). Earnings quality. Accounting Horizons, 17(Supplement), 97-110. https://doi.org/10.2308/acch.2003.17.s-1.97 DOI: https://doi.org/10.2308/acch.2003.17.s-1.97
Scott, W. R. (2015). Financial Accounting Theory. Pearson.
Stolowy, H., & Breton, G. (2000). A review of research on accounts manipulation. In Paper for the Annual Congress of European Accounting Association. Munich, Germany, 23.
Subramanyam, K. R. (1996). The pricing of discretionary accruals. Journal of Accounting and Economics, 22(1-3), 249-281. https://doi.org/10.1016/S0165-4101(96)00434-X DOI: https://doi.org/10.1016/S0165-4101(96)00434-X
Trueman, B. (1986). Why do managers voluntarily release earnings forecasts? Journal of Accounting and Economics, 8(1), 53-71. https://doi.org/10.1016/0165-4101(86)90010-8 DOI: https://doi.org/10.1016/0165-4101(86)90010-8
Trueman, B., & Titman, S. (1988). An explanation for accounting income smoothing. Journal of Accounting Research, 127-139. https://doi.org/10.2307/2491184 DOI: https://doi.org/10.2307/2491184
Tucker, J. W., & Zarowin, P. A. (2006). Does income smoothing improve earnings informativeness? The Accounting Review, 81(1), 251-270. https://doi.org/10.2308/accr.2006.81.1.251 DOI: https://doi.org/10.2308/accr.2006.81.1.251
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Revista Catarinense da Ciência Contábil
This work is licensed under a Creative Commons Attribution 4.0 International License.
The copyright for articles published in this journal belongs to the author (s), with first publication rights assigned to Revista Catarinense da Ciência Contábil. Due to appearing in this publicly accessible journal, articles are free to use, with mandatory recognition of the original authorship and initial publication in this magazine and for educational and non-commercial applications. The magazine chose to use published works for non-commercial purposes, including the right to submit or work for publicly accessible databases. The content of published articles is the sole and exclusive responsibility of the authors. - The author (s) authorize (s) a publication of the article in the journal; - The author (s) guarantee (s) that a contribution is original and unpublished and that it is not being evaluated in another magazine (s); - A magazine is not responsible for the opinions, ideas and concepts emitted in the texts, for the full responsibility of the author (s); - It is reserved to the editors or the right to make textual adjustments and to adjust the article to the publication rules.
This work is licensed under a Creative Commons Atribuição-NãoComercial-CompartilhaIgual 4.0 Internacional.
