Are academic studies reliable in Brazil? Financial variables in an inflationary environment

Abstract

After the stabilization of inflation rates in Brazil, Monetary Correction for financial data was extinguished. Since then, the distinct reflections of prices variations on monetary and non-monetary variables presented on balance sheets are no longer considered. From 2004 to 2013, however, the cumulative inflation reaches 226%. In this situation, questions about the reliability of the greatest tools we have in the finance research world - financial data of companies - emerges. This work compared financial indicators and empirical models built with data adjusted for inflation and original data issued by firms. A database of 143 Brazilian companies traded on Bovespa were adjusted for inflation, from 2004 to 2013, on the precepts of the extinct Monetary Correction. We obtained two different samples: the first containing financial data adjusted for inflation and the second corporate data originally released. Statistical tests showed that financial indicators such as ROI, Asset Turnover, Debt and Market-to-book are significantly higher when we do not consider the effects of inflation. In addition, the panel regression models, when adjusted, had higher predictable power (greater R²) and representative changes of significance on the variables and coefficients. The results indicated that inflation is essential in the analysis of financial data and must be considered in the preparation of reliable databases, although assumed as stable in recent years.