Review of Real Earnings Management Literature

Abstract

One of the objectives of financial reporting is to periodically summarize information about an enterprise's financial performance. Earnings play a central role in measuring the enterprise's performance. In addition, earnings are a central part of the financial statements and additional disclosure that stakeholders use to evaluate how well management discharges its stewardship duties. 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. Unlike accruals earnings management, real earnings management involves real business activities, consumes resources, and potentially affects future operating performance. This paper identifies studies that investigate earnings management via the manipulation of operating, investing and financing activities. Real earnings management research is a relatively new area and contains many unanswered questions.