Corruption and earnings opacity

Abstract

Corruption is a structural problem that deteriorates democracy, country legitimacy and public morality, besides weakening the economy and the accounting system. On the other hand, the earnings management is a phenomenon that denotes the lack of transparency on financial transactions, what results in low accounting quality. These phenomena show evidences of transparency issues and weakness of the accounting system worldwide. The purpose of this study is to discover the real effect of corruption over earnings management level in emerging countries, seeking to provide significant evidence that indicates that a better and more transparent accounting is linked to a less public and private corruption. For a sample of 20 emerging countries, from 2004 to 2013, there will be used control of corruption and rule of law indicators, both extracted from World Bank data. There will also be used indicators of accounting quality, focused on earnings management, from the work of Bhattacharya, Daouk and Welker (2003), which are earnings aggressiveness, loss avoidance and income smoothing. For data analysis was applied, firstly, the Shapiro-Francia test, when the rejection of null hypothesis of data normal distribution, it proceeded to the development of non-parametric tests. In a second moment, it was used the Spearman’s correlation to test the correlation of earnings aggressiveness, loss avoidance, income smoothing, rule of law with control of corruption.