The Relation between Earnings Management Using Real Activities Manipulation and Future Performance

• Main Authors: Chen, Pei-Peng, 陳碑碰
• Other Authors: Hsueh, Chien-Hung
• Format: Others
• Language: zh-TW
• Published: 100
• Online Access: http://ndltd.ncl.edu.tw/handle/12142506747467079721

碩士 === 南台科技大學 === 會計資訊系 === 99 === Companies often use earnings management to apply for listing in the stocks exchange, cash replenishment, anti-dumping lawsuits and other reasons. We urgently need to understand whether earnings manipulation would undermine the future interests of the shareholders? Alternatively, earnings management may be the important signal to inform outsiders about the growth potential of the company. However, there is little literature to explore it, so we analyze this issue. Currently, the company manipulating earnings often use accrual-based or real earnings management. Among them, real earnings management would affect operating activities, which impact more than discretionary accruals. So, this study analyzes real earnings management, including reduction of R&D spending, sales and administrative expenses, advance recognizing gain in sale of assets, over-production /lowering unit costs. Empirical results firms with actual earnings management and overestimating profits tend to have lower cash flow in operating activities in future. Furthermore, firms to meet earnings thresholds including last year’s earnings, breakeven, and analysts’ expectation are likely to use earnings management to improve profitability. The three earnings thresholds are compared one another. The results showed the companies care about breakeven more, and use earnings management to avoid losses. I estimate total earning management, which is abnormal accruals and real earnings management, to test. The empirical results still support the above conclusion. In conclusion, this study confirms firms meeting breakeven usually overestimate profit, and real earnings management would harm the future development of enterprises. Investors should avoid holding such stocks of firms.