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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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    Cited by:

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    10. Naila Tabassum & Ahmad Kaleem & Mian Sajid Nazir, 2015. "Real Earnings Management and Future Performance," Global Business Review, International Management Institute, vol. 16(1), pages 21-34, February.
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    12. Karan Gandhi, 2024. "Real earnings management’s effects on performance in firms reaching the loss avoidance threshold: indian evidence after controlling for variations in firm’s competitive strategy," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 51(3), pages 369-395, September.
    13. Carlos J.O. Trejo-Pech & Richard N. Weldon & Michael A. Gunderson, 2016. "Earnings Management through Specific Accruals and Discretionary Expenses: Evidence from U.S. Agribusiness Firms," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 64(1), pages 89-118, March.
    14. Xie, Xinmei & Chang, Yu-Shan & Shiue, Min-Jeng, 2022. "Corporate life cycle, family firms, and earnings management: Evidence from Taiwan," Advances in accounting, Elsevier, vol. 56(C).
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    16. Manish Kumar & Madhu Vij & Rishabh Goswami, 2021. "Effect of Real Earnings Management on Firm Performance: Evidence from India," Vision, , vol. 27(3), pages 386-396, June.
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    18. Nagar, Neerav & Sen, Kaustav, 2016. "Earnings Management Strategies during Financial Distress," IIMA Working Papers WP2016-02-03, Indian Institute of Management Ahmedabad, Research and Publication Department.
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    21. Dina El Mahdy & Fatima Alali, 2023. "Female CFOs and managerial opportunism," Review of Quantitative Finance and Accounting, Springer, vol. 60(3), pages 1161-1207, April.

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