Political-economic instability and earnings management in an emerging market: the case of the 2016 Presidential Impeachment in Brazil

PurposeThis study analyzes earnings management among Brazilian public firms during the 2016 Presidential Impeachment.Design/methodology/approachThe sample comprises, as a treatment group, 721 firm-quarter observations relating to Brazilian listed firms. It also considers a control group of listed firms from Mexico, which were not affected by the exogenous shock analyzed (i.e. the 2016 Presidential Impeachment in Brazil). The firms' quarterly financial data cover the period between 2013 and 2018.FindingsConsidering several proxies related to earnings management by accruals, the main findings suggest a negative relationship between the 2016 impeachment event and the level of discretionary accruals, suggesting that Brazilian firms tended to reduce their earnings management levels during the impeachment process. The results are robust whether the control group is considered or not.Originality/valueThis study brings new empirical evidence to the literature on accounting information quality about the role of the economic and political environment in earnings management, especially in weak institution countries characterized by institutional voids and higher levels of corruption.