Effect of environmental uncertainty on smoothing results in Brazilian companies

Abstract Purpose: To understand the relationship between environmental uncertainty and the smoothing of accounting results in publicly traded Brazilian companies. Originality/value: The study contributes by relating environmental uncertainty to earnings quality, showing that uncertainty can determine result-smoothing practices in the Brazilian context. Environmental uncertainty can increase companies’ risk as perceived by the market since it hinders predicting future results, causing management to adopt smoothing. Design/methodology/approach: Data refer to the period 2011-2020. The sample comprised 145 Brazilian companies listed on Brazil, Bolsa, and Balcão (B3), which provided information for all analyzed variables. To calculate the environmental uncertainty, we chose the model by Hsieh et al. (2019). The smoothing of results was determined by two measu-res that capture different dimensions of smoothing, presented by Lang et al. (2012). The methods used for data analysis were OLS regression (Ordinary Least Squares) and quantile regression (MMQR: Moments Quantile Regression). Findings: The results indicate that environmental uncertainty has an effect on earnings smoothing. However, this effect only takes place at lower levels of smoothing. Hence, companies that show warning signs of environmental uncertainties tend to increase earnings smoothing practices.