Journal
ACCOUNTING REVIEW
Volume 87, Issue 2, Pages 675-703Publisher
AMER ACCOUNTING ASSOC
DOI: 10.2308/accr-10196
Keywords
real activities manipulation; accrual-based earnings management; trade-off
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I study whether managers use real activities manipulation and accrual-based earnings management as substitutes in managing earnings. I find that managers trade off the two earnings management methods based on their relative costs and that managers adjust the level of accrual-based earnings management according to the level of real activities manipulation realized. Using an empirical model that incorporates the costs associated with the two earnings management methods and captures managers' sequential decisions, I document large-sample evidence consistent with managers using real activities manipulation and accrual-based earnings management as substitutes.
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