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Political–economic instability and earnings management in an emerging market: the case of the 2016 Presidential Impeachment in Brazil

Douglas Andrade (Federal University of Ceará, Fortaleza, Brazil)
Dante Viana Jr (Instituto Universitário de Lisboa (ISCTE-IUL), Business Research Unit (BRU-IUL), Lisbon, Portugal)
Vera Ponte (Federal University of Ceará, Fortaleza, Brazil)
Sylvia Domingos (Federal University of Ceará, Fortaleza, Brazil)

Asian Review of Accounting

ISSN: 1321-7348

Article publication date: 5 January 2023

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Abstract

Purpose

This study analyzes earnings management among Brazilian public firms during the 2016 Presidential Impeachment.

Design/methodology/approach

The sample comprises, as a treatment group, 721 firm-quarter observations relating to Brazilian listed firms. It also considers a control group of listed firms from Mexico, which were not affected by the exogenous shock analyzed (i.e. the 2016 Presidential Impeachment in Brazil). The firms' quarterly financial data cover the period between 2013 and 2018.

Findings

Considering several proxies related to earnings management by accruals, the main findings suggest a negative relationship between the 2016 impeachment event and the level of discretionary accruals, suggesting that Brazilian firms tended to reduce their earnings management levels during the impeachment process. The results are robust whether the control group is considered or not.

Originality/value

This study brings new empirical evidence to the literature on accounting information quality about the role of the economic and political environment in earnings management, especially in weak institution countries characterized by institutional voids and higher levels of corruption.

Keywords

Acknowledgements

Funding: Dante Viana appreciates financial support by Fundação para a Ciência e a Tecnologia, grant UIDB/00315/2020.

Citation

Andrade, D., Viana, D., Ponte, V. and Domingos, S. (2023), "Political–economic instability and earnings management in an emerging market: the case of the 2016 Presidential Impeachment in Brazil", Asian Review of Accounting, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/ARA-06-2022-0154

Publisher

:

Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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