Earnings management through transactions with affiliated Brazilian companies

Abstract

The purpose of this research was to analyze whether Brazilian companies take advantage of their controlling interest position in affiliated companies to manage accounting income. Within this context, the parent company may use its influence to transfer book income from or to the affiliated company. The analysis tool employed was the frequency distribution bar graph (histogram), which is recommended in the subject literature, to verify the existence of earnings management in inter-company transactions. Data for this work were obtained from Economatica, covering years from 2000 to 2004. Among the results found, we may mention evidence of earnings management, although no evidence was found that pointed out to affiliated companies being used for this purpose. Finally, it is proposed that additional survey employing further methods beyond the histogram be implemented, e.g. more robust econometric models.