실제 영업활동을 통한 이익조정과 시장반응

This paper investigates whether managers participate in real activities to avoid reporting annual losses. This study further identifies activities that managers engage in to manipulate earnings. We find evidence consistent with firms trying to avoid reporting losses by offering more lenient credit terms or price discounts to temporarily increase sales, increasing production volume to report lower cost of goods sold, and reducing discretionary expenditures to improve earings. Since overproduction strategy is only available to firms in manufacturing industries, we examine whether manufacturing firms manipulate their earings by overproduction to avoid losses. Consistent with prior results, firms in manufacturing industries manage earings to avoid losses by overproduction strategy. To control performance, we use the performance-matching technique recommended by Kothari et al.(2005). After controlling firms’ performance, suspect firms report significantly lower abnormal CFO(cash flow from operations) and abnormal discretionary expenditure and significantly higher abnormal production costs that indicates suspect firms are engaging in real earnings management. We explicitly examine the extent to which real earnings management affects subsequent operating performance and whether investors recognize the consequences of real earnings management. The results indicate that real earnings management are negatively associated with subsequent operating performance. However real earnings management are not significantly associated with subsequent SAR(size adjusted abnormal return). The results indicate investors cannot recognize real earnings management, which implies that managers have incentive to engage in real earnings manipulation. This paper contributes to the accounting literature by providing evidence on real earnings management to avoid reporting losses and identifies specific real activities which affect CFO, discretionary expenditure and production costs. By undertaking a comprehensive examination of types of real earnings management, this paper contributes to assess accounting information reliability thus make better decisions.