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Real Activities Manipulation and Subsequent Accounting Performance ---Yes, the Manipulating Direction Matters

Author

Listed:
  • Ching-Lung Chen

    () (National Yunlin University of Science & Technology, Taiwan)

  • Pin-Yu Lin

    () (National Yunlin University of Science & Technology, Taiwan)

  • Pei-Yu Weng

    () (National Yunlin University of Science & Technology, Taiwan)

Abstract

Previous studies reveal mixed results for the association between managers¡¯ aggressive real activities manipulation and a firm¡¯s subsequent performance. To examine the effects of real activities manipulation on a firm¡¯s subsequent accounting performance, this study incorporates the manipulating patterns (income-increasing vs. income-decreasing) into model, and uses unbalanced- panel data to establish the empirical regressions. The results reveal that a firm¡¯s income-increasing real activities manipulation is associated with a remarkable subsequent accounting performance. This finding supports the signal future prospect hypothesis of firms¡¯ strategic earnings reporting through aggressive real activities manipulation. However, the conjecture that the income-decreasing real activities manipulation is associated with better subsequent performance gains supported only in some settings. This study demonstrates some diagnostic checks, and provides evidence that the results are robust to the various specifications.

Suggested Citation

  • Ching-Lung Chen & Pin-Yu Lin & Pei-Yu Weng, 2014. "Real Activities Manipulation and Subsequent Accounting Performance ---Yes, the Manipulating Direction Matters," Review of Economics & Finance, Better Advances Press, Canada, vol. 4, pages 81-97, Feburary.
  • Handle: RePEc:bap:journl:140107
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    References listed on IDEAS

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    More about this item

    Keywords

    Real activities manipulation; Accounting performance; Signal prospect; Opportunism; Unbalanced-panel data;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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