Review of Real Earnings Management Literature  

Oleh:

Xu, Randall Zhaohui ; Taylor, Gary K. ; Dugan, Michael T.

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: Journal of Accounting Literature vol. 2007 no. 26 (2007), page 195-228.
Topik: Public Sector Accounting; PSA; Real Earnings Management
Fulltext: JAL 07 26 195.pdf (3.04MB)

Isi artikel

While accruals management has been the primary focus of earnings management research, there recently has been a growing body of real earnings management studies. This paper reviews the extant real earnings management literature. A unique feature of real earnings management is that it involves manipulation of real business activities, such as research and development (R&D) expenditures, capital investments, and the production, sale and disposal of long-term assets. Section two discusses the various instances of real earnings management in terms of operating, investing, and financing activities. As will be discussed in section two, the manipulation of real business activities may materially reduce long-term profitability, and/or alter the company's capital structure. It often is unclear as to whether or not this change in capital structure will substantially affect long-term profitability. Section three surveys research on the consequences and potential costs of real earnings management on firms' subsequent performance. Section four summarizes investors' reactions to real earnings management. Accruals management and real earnings management constitute alternative means of earnings management. Section five covers studies on the interaction and likely 'pecking order' between accruals and real earnings management. The last section concludes the paper.

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