The Extension of the Modified Jones Model With Control Variables: Empirical Finds From the Brazilian Capital Market

FLORES, E. S. ; SAMPAIO, J. O. . The extension of the modified Jones model with control variables: Empirical findings from the Brazilian Capital Market. INTERNATIONAL JOURNAL OF AUDITING TECHNOLOGY, v. 4, p. 05, 2019.

16 Pages Posted: 22 Jul 2020

See all articles by Eduardo Flores

Eduardo Flores

University of São Paulo - School of Economics, Business and Accounting

Joelson Oliveira Sampaio

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Date Written: 2019

Abstract

The development of accruals models in earnings managements allowed several studies in this area. However, reviews regarding these approaches revealed their weakness related to the control of the sample diversity. In this context, the primary purpose of this study was to analyze how the inclusion of control variables proposed in the literature could improve the robustness of the modified Jones model in the Brazilian stock markets. To identify the most prominent control variables, we reviewed 84 manuscripts, which indicated us the six common control variables employed in accruals models with this purpose: ROA (Return on Assets), Book to Market (BTM), Industry, Financial Leverage, Size, and Timeliness. From this review, we tested the controls in a panel-data with a sample of 8,600 firm-observations collected from the Brazilian public companies on a quarterly frequency between 1999 and 2009. We selected the Brazilian capital market due to its concentration on a few public companies that composed this market. It is important to mention that we did not include years after 2009 due to the Brazilian IFRS adoption. Our results indicate that ROA, BTM, Market Segment and Timeliness were statistically significant, showing an increase in the finds robustness. Other variables did not present significance.

Keywords: Earnings Management; Accruals Models; Control Variables; Brazilian Capital Market

JEL Classification: G30

Suggested Citation

Flores, Eduardo and Sampaio, Joelson Oliveira, The Extension of the Modified Jones Model With Control Variables: Empirical Finds From the Brazilian Capital Market (2019). FLORES, E. S. ; SAMPAIO, J. O. . The extension of the modified Jones model with control variables: Empirical findings from the Brazilian Capital Market. INTERNATIONAL JOURNAL OF AUDITING TECHNOLOGY, v. 4, p. 05, 2019., Available at SSRN: https://ssrn.com/abstract=3639282 or http://dx.doi.org/10.2139/ssrn.3639282

Eduardo Flores

University of São Paulo - School of Economics, Business and Accounting ( email )

Rua Luciano Gualberto, 315
São Paulo, São Paulo 14800-901
Brazil

Joelson Oliveira Sampaio (Contact Author)

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Brazil

HOME PAGE: http://eesp.fgv.br/

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