ACCOUNTING CHOICES IN THE BRAZILIAN MARKET: VOLUNTARY DISCLOSURE VERSUS EARNINGS MANAGEMENT

Abstract

The objective of this paper is to empirically test the relation between the levels of voluntary disclosure and earnings management of Brazilian public companies. Firstly, according to the existing literature, it is expected a negative relation between these two corporate practices. The underlying idea is that more transparent companies would manage less their earnings. In order to reach that goal, a total of 100 companies had their practices of the years ended in 2006, 2007 and 2008 analyzed. The level of voluntary disclosure was analyzed based on a disclosure index composed of 92 types of information divided in 2 dimensions: economic (43) and socio-environmental (49). For earnings management proxy it was used the Jones (1991) model. The relation between voluntary disclosure and earnings management was figured out through a simultaneous equation model, where, first, the level of discretionary accruals is explained based on the level of voluntary disclosure and a group of controlling variables and, subsequently, voluntary disclosure is explained based on the accruals and other controlling variables. As the main result of this research, it was found that an increase in the economic disclosure does reduce the level of discretionary accruals.