Real earnings management, institutional environment, and future operating performance: An international study

Haiyan Jiang*, Ahsan Habib, Snow Wang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)

Abstract

This paper investigates the association between firms' engagement in real activities manipulation (hereafter REM) on future firm performance in an international setting, and whether the association is conditional upon country-level institutional factor. Our inquiry is motivated by a paucity of research on the consequences of REM in an international setting. Using a large sample over the period of 2001 to 2015, we find that current-period REM is positively associated with future performance: a finding that is consistent with Gunny (2010) in the US. Importantly, we find that the positive performance effect is driven by firms operating in countries with strong institutional environments. Finally, we find that future operating performance improves when REM is undertaken by firms in strong institutional environments only during a non-economic crisis period, but not during an economic crisis period. The paper adds to the existing REM literature by showing a non-monotonic effect of REM on future performance that is conditional on the strength of a country's institution. We also contribute to the accounting information and crisis literature by documenting a time-variant effect of REM on future performance.

Original languageEnglish
Pages (from-to)33-53
Number of pages21
JournalThe International Journal of Accounting
Volume53
Issue number1
DOIs
Publication statusPublished - 1 Mar 2018
Externally publishedYes

Keywords

  • Firm performance
  • Institutional environment
  • Real earnings management

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