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Consequences of real earnings management on subsequent operating performance

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  • Taylor, Gary K.
  • Xu, Randall Zhaohui

Abstract

Using three criteria, we identify firms that may have engaged in real earnings management. We then investigate whether real earnings management activities lead to a significant decline in these firms’ subsequent operating performances. Our test results demonstrate that firms identified as conducting real earnings management activities do not experience a significant decline in subsequent operating performance. The finding enhances our understanding of the process through which management evaluates the costs and benefits of real earnings management and helps address concerns about costs of the increase in real earnings management activities that arose due to the heightened accounting regulation implemented by the Sarbanes–Oxley Act.

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  • Taylor, Gary K. & Xu, Randall Zhaohui, 2010. "Consequences of real earnings management on subsequent operating performance," Research in Accounting Regulation, Elsevier, vol. 22(2), pages 128-132.
    • Handle: RePEc:eee:reacre:v:22:y:2010:i:2:p:128-132
    DOI: 10.1016/j.racreg.2010.07.008
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