Financial accounting in Brazil: an empirical examination

• Published in: Latin American business review (Binghamton, N.Y.) N.Y.), 2005-01, Vol.6 (4), p.45-68
• Main Author: Lopes, Alexsandro Broedel
• Format: Article
• Language: English
• Subjects: Brazil; Business studies; Capital market; Credit market; Developing countries; Empirical research; Financial accounting; Information; Latin America; Legal systems; Value
• ISSN: 1097-8526
• DOI: 10.1300/J140v06n04UL03

ABSTRACT IN ENGLISH: In this study, evidence of the value relevance of Brazilian accounting numbers over the periods 1995-1999 is presented. Brazil is a developing code law country, wherein Brazilian firms are financed by an `insider model,' i.e., they do not rely on capital markets and public credit markets to finance their operations. Brazil complies with four out of the five criteria that Ali and Hwang (2000) show to be negatively related to the relevance of financial accounting information. Based on this scenario, public financial accounting information is not expected to be value relevant in Brazil. Therefore, results show that, in terms of levels regression (prices as dependent variables), accounting seems to be reasonably value relevant (using R2 as a measure of value relevance). However, after controlling for scale effects, as suggested by Brown et al. (1999), the R2 is significantly reduced. In addition, the earnings-return relationship and the conservatism of earnings are examined. As previous research suggests (Leuz and Wustemann, 2003), the earnings-return relationship is weak in Brazil as well as the conservatism of earnings as expected, given previous research comparing code and common law countries (Ball et al., 2001). The results of the study also show that book values concentrate most of the value relevance on preferred shares. // ABSTRACT IN SPANISH: Este estudio presenta pruebas de la importancia que las cifras de la contabilidad brasileña tuvieron en el período 1995-1999. Brasil es un país que utiliza un código jurídico en desarrollo gracias al cual las empresas brasileñas reciben financiamentos de un "modelo interno." Ej.: ellos no dependen de los mercados de capital ni los mercados de crédito público para financiar sus operaciones. Brasil cumple cuatro de los cinco criterios que Ali y Hwang (2000) muestran que están negativamente vinculados a la importancia de la contabilización de la información financiera. En base a este escenario, no se espera que la información contable público financiera tenga un valor importante en Brasil. Por consiguiente, los resultados muestran que, en términos de niveles de regresión (precios como variables dependientes), la contabilidad parece tener un valor razonablemente importante (usando R2 como una medida de la importancia del valor). Sin embargo, después de controlar los efectos de escala como fue sugerido por Brown et al. (1999), R2 se reduce significativamente. Además también se examina la relación