EARNINGS MANAGEMENT IN BRAZILIAN FINANCIAL
INSTITUTIONS: ANALYSIS FROM THE PERSPECTIVE OF PUBLIC CHOICE THEORY AND
POLITICAL CYCLES THEORY
Name: SCHLEIDEN PINHEIRO NASCIMENTO
Publication date: 16/04/2025
Examining board:
Name |
Role |
|---|---|
| DIMAS BARRÊTO DE QUEIROZ | Examinador Externo |
| DONIZETE REINA | Examinador Interno |
| JOSÉ ALVES DANTAS | Examinador Externo |
| MARCELO ÁLVARO DA SILVA MACEDO | Presidente |
| ROBSON ZUCCOLOTTO | Examinador Interno |
Summary: This thesis, composed of three studies, aims to analyze the existence of earnings management
practices in Brazilian public financial institutions from the perspective of Public Choice Theory
and Political Cycles Theory. The theoretical contribution of this research lies in linking the
fields of accounting and political science. To delimit the scope of the study, financial
institutions operating in Brazil between 2002 and 2023 were considered, provided they had at
least ten years of data within this period. The methodology, with a quantitative approach using
panel data with fixed effects and robust regression, was based on the application of two-stage
econometric models. The positive relationship between the discretionary portion of the Loan
Loss Provisions (LLP) and accounting earnings (excluding LLP) indicates the presence of
earnings management among Brazilian financial institutions in general, through the practice of
income smoothing via LLP. On the other hand, in public financial institutions, this relationship
is negative, suggesting the adoption of Take a Bath or Big Bath Accounting practices. No
evidence was found of earnings management in relation to political cycles. However, regarding
earnings management from the perspective of political ideology, the findings suggest that rightwing governments adopt earnings management practices like those of financial institutions in
general, while left-wing governments follow practices more aligned with public financial
institutions. All three studies converge in recognizing the centrality of discretionary LLP as a
key instrument of earnings management in the banking sector. Both in the general context and
in the specific analysis of public financial institutions, the discretion associated with this
provision emerges as a relevant accounting practice influenced by institutional, economic, and
political factors. This convergence reinforces the methodological robustness of the studies and
their contribution to academic literature on the topic. Considering the limitations of this
research, a qualitative approach is recommended for future studies to capture aspects not
observed in the quantitative analyses.
