Earning management in presidential elections periods in Brazil

Abstract

This paper aims to verify whether companies with political connections have different levels of earnings management (ERM) than other companies in presidential election periods. We analyzed 2,272 B3-listed companies from 2010 to 2019 using fixed-effect panel data models for time and sector. Modified Jones (Dechow et al., 1995) and Roychowdhury (2006) models tested for GR via accruals and operational decisions. The findings indicate that, in general, companies increase earnings management by accruals in election years. Connected companies managed accruals more than non-connected ones, even during election years. However, connected companies showed less management by operating decisions than non-connected companies. Election periods did not affect the level of management or the difference in management decisions between connected and unconnected companies. These findings provide new perspectives on the effects of political connections and earnings management in the Brazilian market.