The purpose of this study is to investigate the effect of national corruption as perceived by society on earnings management, moderated by economic policy uncertainty (EPU), in companies operating in Latin America. This study relies on a panel data set comprising 2,757 firm-year observations from 263 firms located in Brazil, Colombia and Mexico, covering the period from 2011 to 2023. The empirical analysis was conducted using the two-step system generalized method of moments estimator. The findings suggest that higher levels of perceived national corruption are positively linked to increased earnings management in the combined sample of the three countries. This relationship appears to diminish under heightened EPU, indicating that the link between corruption and earnings management is nonlinear. In country-level analyses, the positive relationship, negatively moderated by EPU, is observed only among Mexican firms. In the cases of Brazil and Colombia, these relationships were not statistically significant. The findings cannot be generalized to all Latin American countries, nor to privately held firms, which are typically less exposed to market scrutiny. Furthermore, this study may assist investors and creditors in considering the effects of national corruption and EPU, factors that often encourage opportunistic managerial behaviour, with adverse implications for the quality of financial reporting.
Corrêa et al. (Wed,) studied this question.
Synapse has enriched 5 closely related papers on similar clinical questions. Consider them for comparative context: