Accounting Information Quality of Latin American Firms: The Influence of The Regulatory Environment


  • Cinthya Rachel Firmino de Morais Universidade Federal do Ceará
  • Karla Vanessa Nogueira Maia Amorim Universidade Federal do Ceará
  • Dante Baiardo Cavalcante Viana Júnior Universidade Federal da Paraíba
  • Sylvia Rejane Magalhães Domingos Universidade Federal do Ceará
  • Vera Maria Rodrigues Ponte Universidade Federal do Ceará





Objective: This study aimed to investigate the relationship between the regulatory environment and the quality of the accounting information of Latin American companies, specifically regarding earnings management through accruals.

Background: It is believed that the regulatory environment in which firms operate has an influence on the informational quality of disclosed financial reports, since by monitoring information regulatory bodies increase incentives for the elaboration of high quality financial reports (Shima & Gordon, 2011). On the other hand, other authors such as Silva, Galdi and Teixeira (2010) point out that when regulation originates from agencies linked to the state, governments susceptible to popular reaction could establish stricter rules or control sectors in a strategic way. Thus, companies regulated by public bodies could use earnings management practices in certain periods, such as election years.

Method: The study sample was comprised of companies listed on the main stock exchanges in Latin America, according to the availability of information in the Capital IQ® database – the main data source for this study – and that adopted IFRS as the basis for preparing their financial statements in the period analyzed (2011 to 2016), thus totaling 2,360 firm-year observations. Considering the absolute value of discretionary accruals as a proxy for earnings management, the results suggest that there is a positive relationship between the regulatory environment and the manipulation of profits. The final sample resulted in observations about the companies listed on the stock exchanges of Brazil, Chile, Mexico and Peru, where the statistical analyzes presented for each country, as well as considering the Latin American context.

Results: Our results indicate that the regulatory environment is positively related to the use of discretionary accruals for companies in Brazil, Peru, Mexico, and considering Latin America as a whole. For Chile, there does not seem to be any significant relationship between these factors, so that it is concluded that there are aspects related to the country level, whether economic, cultural, or institutional, that were not mentioned by this study and that are possibly able to influence the use of discretionary accruals as a form of earnings management.

Contributions: The results presented by the study contribute to the literature on information quality and regulation, first because they present evidence that regulation negatively influences the quality of accounting information, secondly because it investigates a context of emerging markets that despite the political instability, some studies predict a growth of in the coming years, especially those in Latin America,  and third, because it analyzes the companies of these countries from an individual and collective perspective , allowing a discussion of the reality of each country, among them and with other contexts.


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Como Citar

de Morais, C. R. F., Amorim, K. V. N. M., Viana Júnior, D. B. C., Domingos, S. R. M., & Ponte, V. M. R. (2019). Accounting Information Quality of Latin American Firms: The Influence of The Regulatory Environment. Revista Evidenciação Contábil &Amp; Finanças, 7(2), 41–60.



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