Real activities management by Australian companies

Purpose: This study investigates the extent to which Australian Listed companies engage in the manipulation of specific real activities as a means of ensuring that important earnings benchmarks are met or just beaten. Originality: Investigation of real activities management as a category of earnings management is centred on the U.S and has identified a number of techniques employed in managing operating income. To date there has been no comprehensive investigate of this practice using Australian data. This study examines the extent to which managers of Australian companies employ similar techniques to those identified in prior U.S. studies. Key literature: Prior literature has developed expectation models of real operating activities akin to the discretionary accruals models used in studies of accruals earnings management. These models have been used to provide evidence that U.S. companies have employed real activities management in meeting important earnings benchmarks. More recently there has been criticism of these expectation models, with suggestions that a matched-sample design similar to that employed by Kothari et al. (2005) results in better specified tests. Methodology: Expectations models; matched-sample design; regression analysis.