Indebtedness and accounting choices: the nonlinear relation between debt and earnings quality

Authors

DOI:

https://doi.org/10.11606/issn.1982-6486.rco.2018.137077

Keywords:

Earnings quality, Long-term debt, Nonline, Nonlinearity

Abstract

Corporate debt contracts generate different incentives for managers to engage in earnings management. According to many studies in the literature, companies would seek to decrease discretionary accruals to decrease information asymmetry and to incur in lower funding costs. Other studies, however, point out that companies with high debt levels can do the opposite by increasing discretionary accruals to avoid covenants. Given these two theories, this paper proposes a nonlinear relationship between debt and the discretionary component of earnings for companies listed on BM&FBOVESPA from 2008 to 2015. Evidences indicate a positive relationship between low debt levels and earnings quality, but negative for higher debt levels. It suggests that in higher debt levels, it is preferable to decrease earnings quality than to incur in losses due to contractual breaches. Further analysis indicates that such nonlinear relationship is related to long-term debt rather than to short-term debt.

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Author Biographies

  • Cristiano Machado Costa, Universidade do Vale do Rio dos Sinos
    O Professor Cristiano Machado Costa possui graduação em Ciências Econômicas pela Universidade Federal do Rio Grande do Sul (2002), mestrado em Economia pela Fundação Getulio Vargas - RJ (2004) e doutorado em Economia pela University of Pennsylvania (2010). Vinculou-se à Unisinos em 2014, onde atualmente é Professor Assistente, dedicando-se a projetos de pesquisa e ao ensino em nível de Graduação e Pós Graduação, em cursos da Escola de Gestão e Negócios da Unisinos, na área de Ciências Contábeis. O professor também integra o corpo docente do Mestrado Profissional em Direito da Empresa e dos Negócios na Escola de Direito da Unisinos. Seus principais tópicos de pesquisa são: Finanças Corporativas, Governança Corporativa e Métodos Quantitativos Aplicados à Contabilidade e ao Direito.
  • Adriana Machado Matte, Universidade do Vale do Rio dos Sinos
    Mestre em Ciências Contábeis, na linha de pesquisa de Contabilidade para usuários externos, bacharel em Ciências Contábeis com curso de pós-graduação em Controladoria e pós-graduação em Docência no Ensino Superior. Profissional com experiência na área contábil e tributária, com atuação em empresas locais e multinacionais. Desempenho atividade acadêmica como: Tutora no curso de Ciências Contábeis ? Ensino a Distância (EAD) da Unisinos, nas disciplinas de Contabilidade e Planejamento Tributário II, Contabilidade Básica, Contabilidade Intermediária I, Contabilidade de Custos I e Laboratório de Práticas Contábeis II; e Professora no curso de Ciências Contábeis da FADERGS, com atuação nas disciplinas de Fundamentos de Contabilidade, Planejamento e Contabilidade Tributária e Laboratório de Prática contábil.

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Published

2018-05-23

Issue

Vol. 12 (2018)

Section

Paper

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How to Cite

Costa, C. M., Matte, A. M., & Monte-Mor, D. S. (2018). Indebtedness and accounting choices: the nonlinear relation between debt and earnings quality. Revista De Contabilidade E Organizações, 12, e137077. https://doi.org/10.11606/issn.1982-6486.rco.2018.137077