Profit and Loss from the Management Perspective: How Are the Earnings Presented in the Management Reports?

Journal of Education and Research in Accounting, REPeC, Brasília, v. 8, n. 4, art. 1, p. 344-360, October/December 2014

29 Pages Posted: 2 Jan 2015 Last revised: 8 Feb 2015

See all articles by Luiz Henrique Fernandes Vargas

Luiz Henrique Fernandes Vargas

Federal University of Espirito Santo

Jose Elias Feres de Almeida

Federal University of Espirito Santo (UFES)

Elizeu Junior

Federal University of Espirito Santo

Date Written: 2014

Abstract

This paper aims to analyze how textual information on company earnings are presented in the Management Reports in alternating periods of profit and loss. The theoretical foundations were based on the agency theory and on impression management. A qualitative-quantitative approach was adopted and the data were analyzed through statistical tests of comparison of means based on content analysis. Management Reports were analyzed from 30 companies listed on BM&FBovespa – which presented profit in 2009 and loss in 2010. The main evidence found in the management report analysis were: i) difference in the number of lines and words between the profit and loss periods; ii) in loss periods, the occurrence of terms that express this result is limited and the terms Ebitda and gross margin are highlighted; and iii) there are signs of deviation of the users’ attention from the earnings to other indicators through the selection and repetition of financial terms, reducing the exposure of the negative results and enhancing the positive indicators. These results indicate an environment that reflects the information asymmetry problems, in which regulatory entities should develop policies to monitor the discretionary choices on Financial Statements that can mislead the market participants.

Keywords: Disclosure, Management reports, Impression management

JEL Classification: M40, M41, M49, M14

Suggested Citation

Vargas, Luiz Henrique Fernandes and Almeida, Jose Elias Feres de and Junior, Elizeu, Profit and Loss from the Management Perspective: How Are the Earnings Presented in the Management Reports? (2014). Journal of Education and Research in Accounting, REPeC, Brasília, v. 8, n. 4, art. 1, p. 344-360, October/December 2014, Available at SSRN: https://ssrn.com/abstract=2544336

Luiz Henrique Fernandes Vargas

Federal University of Espirito Santo ( email )

Av. Fernando Ferrari, 514
No. 514, Goiabeiras
Vitória, Espirito Santo 29075
Brazil

Jose Elias Feres de Almeida (Contact Author)

Federal University of Espirito Santo (UFES) ( email )

Av. Fernando Ferrari, n. 514, Goiabeiras
Centro de Ciências Jurídicas e Econômicas
Vitoria, Espírito Santo 29075-910
Brazil
+5527992248737 (Phone)

Elizeu Junior

Federal University of Espirito Santo ( email )

Av. Fernando Ferrari, 514
No. 514, Goiabeiras
Vitória, Espirito Santo 29075
Brazil

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