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The article provides evidence that firms engaged in real earnings management (REM) activities through sales manipulation to report higher earnings have worse financial performance in future.
Journal ArticleDOI
Mark Bagnoli, Susan G. Watts 
77 Citations
Our analysis leads to new, testable relations among earnings management, reported and actual earnings, and industry...
Furthermore, the results report that the behavior of managers is opportunistic towards managing earnings and they are destroying the current and subsequent firm value by manipulating the reported accounting earning.
In fact, companies managing their earnings tend to make annual report readability more complex.
These results, documenting patterns of annual ETR estimates and revisions, contribute to research about how earnings management is accomplished.
Results suggest that the positive association between discretionary accruals and earnings intensifies around the actual profit benchmark (i. e., where earnings management i...
Moreover, we find some evidence that companies using more real earnings management and with better current operating performance are less likely to report aggressive pro forma numbers.
Earnings smoothing via accounting discretion could improve or garble actual earnings information.
This paper therefore fills this gap in the literature by providing the first evidence for UK FTSE 350 companies that auditor report is positively associated with real and accrual earnings management.
This paper provides empirical evidence on the predictive ability and information content of nonearnings annual report numbers beyond that contained in earnings.'
For firms that restate at least one annual report, we find that investors are misled by mistakes in reported earnings at the time of initial earnings announcements.
This drives a negative association between total report lag and earnings management.
Results indicate revisions to preliminary announcements when filing the 10-K report would have been 35% lower during 2005 if the historical frequency of issuing earnings releases after the audit report date had not changed.
Also, results show that earnings have positive effect and loss has negative effect on earnings information content and operating cash flows.
I also provide evidence that complete audits and higher quality audits impact the information content of the earnings announcement.
In addition, the results appear not to be attributable to the well-established impact of earnings persistence on the compensation–earnings association.