Service quality and earnings management in Brazilian electricity distributors

What the paper says

Purpose This article examines the relationship between service quality and earnings management in Brazilian electricity distributors. Design/methodology/approach Service quality was measured using the Global Continuity Performance Indicator, as released by the Brazilian Electricity Regulatory Agency (ANEEL). To measure earnings management, the models by Dechow et al. (1995), Kothari et al. (2005), and Pae (2005) were used. Findings The results show that lower service quality is related to greater opportunism in management through earnings management. Furthermore, the study shows that managing earnings can distort the true economic and financial position of companies with low operational performance. Research limitations/implications The research enhances comprehension regarding the correlation between service quality, measured by the Global Continuity Performance Indicator, and earnings management within a distinct industrial and regulatory framework. This could establish a foundation for prospective studies delving into analogous relationships across diverse sectors or regions. Practical implications The findings offer insights for regulatory authorities to promote higher standards in the generation of informational quality, which can impact the quality of services. Social implications Enhancing the quality of electrical service through more responsible management practices leads to increased consumer satisfaction, driven by improvements in the continuity of energy supply. Originality/value A gap exists in the literature due to the lack of studies examining the relationship between the quality of electrical service, measured by the continuity index, and opportunistic management practices through earnings management.