Consequences of Real Earnings Management on Subsequent Operating Performance

Research in Accounting Regulation, Vol. 22, pp. 128-132, 2010

Posted: 8 Apr 2011 Last revised: 24 Jul 2013

See all articles by Gary K. Taylor

Gary K. Taylor

University of Alabama - Culverhouse College of Commerce & Business Administration

Zhaohui Randall Xu

University of Houston, Clear Lake

Date Written: October 31, 2010

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.

Keywords: Consequences of Real Earnings Management, Subsequent Performance, Sarbanes–Oxley Act, Tighter Accounting Regulation

Suggested Citation

Taylor, Gary Kenneth and Xu, Zhaohui Randall, Consequences of Real Earnings Management on Subsequent Operating Performance (October 31, 2010). Research in Accounting Regulation, Vol. 22, pp. 128-132, 2010, Available at SSRN: https://ssrn.com/abstract=1803640

Gary Kenneth Taylor

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Box 870223
Dept. of Accounting
Tuscaloosa, AL 35487-0223
United States

Zhaohui Randall Xu (Contact Author)

University of Houston, Clear Lake ( email )

2700 bay area blvd,
box 42
Houston, TX 77058
United States
281-283-3145 (Phone)

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