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Complementary association between real activities and accruals-based manipulation in earnings reporting


  • Ching-Lung Chen
  • Su-Hui Huang
  • Hung-Shu Fan


Extant studies focus on examining the developed capital markets and reveal mixed results for the association between real activities versus accruals-based earnings management. This study establishes a set of simultaneous equations that captures managers’ behaviors to boost (or suppress) earnings performance to examine whether real activities and discretionary accruals play mutually complement roles in earnings reporting in Taiwan. The two-stage least squares regressions results reveal that the realactivities manipulation comprehensive measure is positively associated with discretionary accruals and supports the complement hypothesis. It suggests that managers jointly and simultaneously use these two tools in strategic earnings reporting decisions.

Suggested Citation

  • Ching-Lung Chen & Su-Hui Huang & Hung-Shu Fan, 2012. "Complementary association between real activities and accruals-based manipulation in earnings reporting," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 15(2), pages 93-108, June.
  • Handle: RePEc:taf:jpolrf:v:15:y:2012:i:2:p:93-108
    DOI: 10.1080/17487870.2012.667965

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