ACCOUNTING INCOME VERSUS RECURRING INCOME: EVIDENCE OF PERSISTENCE IN THE BRAZILIAN BANKING INDUSTRY
DOI:
https://doi.org/10.4270/ruc.2021428Keywords:
Recurring Earnings, Non-Recurring Items, Persistence, Non-GAAP MeasuresAbstract
The objective of this study was to empirically test whether the recurring income measure is more persistent than the accounting net income disclosed in the financial reports of Brazilian banks. The assumption assumed is that these entities would classify income items as non-recurring to provide more persistent income measures, which is more helpful in evaluating the entities' actions. For this purpose, we estimate models of persistence of accounting and recurring earnings using two data samples from 27 listed and/or relevant Brazilian banks. The test results reported evidence that both the recurring income measure and the accounting net income are persistent and that the recurring income persistence parameters are consistently higher than those of the accounting net income. When considering the sample with greater temporal coverage, their differences are statistically relevant, as expected. This behavior of greater persistence of recurring earnings is more prominent among listed and state-controlled banks. Additionally, we explored income items disclosed by banks as non-recurring. We found that the most cited item in the period examined was taxes, including deferred tax assets, which for the most part, were due to changes in tax rates. Empirical evidence contributes to the evolution of the literature on non-GAAP measures, specifically recurring earnings, as an indicator of earnings persistence.
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