The fine line between earnings management and corporate fraud
DOI:
https://doi.org/10.17524/repec.v18i2.3315Keywords:
Gerencimamento de Resultados, Fraudes Corporativas, Demonstrações FinanceirasAbstract
Objective: To investigate whether the levels of earnings management increase in periods before corporate fraud is uncovered.
Method: Three different samples were analyzed: Sample 1, comprising all non-financial companies listed in Brazil, Bolsa, Balcão (B3); Sample 2, comprising companies convicted of fraud; and Sample 3, in which fraudulent and non-fraudulent companies were matched. Logit regression was performed for panel data in Sample 1; a descriptive analysis was performed by quartiles for Sample 2; and Altman’s Z score, Mann-Whitney U test, and graphical analysis were performed for Sample 3.
Results: Generally, the results indicate that companies involved with fraud more frequently resourced earnings management companies not involved with fraud; however, it was impossible to identify the exact period when fraud was committed.
Contributions: This study contributes to organizations and their respective gatekeepers. Its contributions include innovations upon previous studies: (i) it proposes different variable and modeling approaches; (ii) it is a pioneer study in the Brazilian context; (iii) it encourages a reflection upon the impact of competition between reliable information and quality of profits.
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