To read the full version of this content please select one of the options below:

Effects of capital structure and institutional–financial characteristics on earnings management practices: Evidence from Latin American firms

Jorge Andrés Muñoz Mendoza (Departamento de Gestión Empresarial, Universidad de Concepcion, Concepcion, Chile)
Sandra María Sepúlveda Yelpo (Departamento de Gestión Empresarial, Universidad de Concepcion, Concepcion, Chile)
Carmen Lissette Velosos Ramos (Departamento de Gestiˇón Empresarial, Universidad de Concepción, Los Ángeles, Chile) (Escuela de Ingeniería Comercial, Facultad de Economía y Negocios, Universidad Santo Tomas, Santiago, Chile)
Carlos Leandro Delgado Fuentealba (Escuela de Administración y Negocios, Universidad de Concepción, Chillán, Chile)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 21 April 2020

Issue publication date: 1 June 2021

Abstract

Purpose

The purpose of this article is to analyze the effects of financing policy and countries' institutional–financial characteristics on earnings management (EM) practices in Latin American companies.

Design/methodology/approach

The GMM estimator was used according to Arellano and Bover (1995) for panel data on a sample of 983 Latin American companies between 1995 and 2017.

Findings

Leverage and short-term debt have a negative and nonlinear effect on EM practices. Nonlinearity suggests that firms with high levels of leverage and short-term debt carry out positive discretionary accruals. Countries' institutional and financial development reduces EM practices. Mandatory IFRS adoption also reduces these practices and mitigates the effects of the low institutional and financial development on EM.

Originality/value

These results reveal the relevance of companies' financing policy as a means of controlling EM practices. Results also suggest that policy effectiveness decreases with leverage and short-term debt. It is suggested that policymakers design financial policies aimed to promote institutional and financial development as a means of systematic control over EM activities, which also includes IFRS.

Keywords

Citation

Muñoz Mendoza, J.A., Sepúlveda Yelpo, S.M., Velosos Ramos, C.L. and Delgado Fuentealba, C.L. (2021), "Effects of capital structure and institutional–financial characteristics on earnings management practices: Evidence from Latin American firms", International Journal of Emerging Markets, Vol. 16 No. 3, pp. 580-603. https://doi.org/10.1108/IJOEM-03-2019-0239

Publisher

:

Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited