Financial regulation on earnings quality: a comparative analysis in Brazilian and European football

Abstract

This research aims to analyze the impact of financial regulations on the earnings quality of Brazilian and European football clubs. This study addresses the gap in existing literature covering the impact of regulations on European football by analyzing the impact of Programa de Modernização da Gestão e de Responsabilidade Fiscal do Futebol Brasileiro on Brazilian clubs’ earnings quality and comparing it with the European context. This research is relevant due to the unique financial and regulatory landscape of Brazilian nonprofit football clubs, providing a distinct context for analyzing the impact of financial regulation. Our findings may be of interest to policymakers who could consider implementing similar programs in other countries. The sample comprises 67 football clubs (21 English, 21 Italian, and 25 Brazilian), totaling 976 firm-year observations. The analysis spans from 2010 to 2022 for the Brazilian context and from 2006 to 2022 for the European context. We analyze accruals earnings management and conditional conservatism models to examine the influence of those regulations across Brazilian and European football clubs, comparing the results prior to and after their implementation. Results indicated that regulatory changes have reduced discretionary earnings practices across these countries, indicating their effectiveness in fostering accurate financial reporting and transparency. However, the conditional conservatism analysis further reveals a decrease in conditional conservatism post-regulation in Brazil, with clubs recognizing losses less promptly, while no significant effect was observed in English and Italian clubs. This highlights the complex and divergent impacts of regulations on financial reporting behaviors in the global football industry.