Earnings Management to Avoid Earnings Boosts

Naser Makarem, Clare Roberts

Research output: Contribution to journalArticle


Purpose: The purpose of this study is to investigate whether earnings boosts before the yearend trigger earnings management. It examines whether firms that substantially outperformed their last year earnings during the first three quarters push their earnings down to avoid reporting earnings boosts.
Design/Methodology/Approach: Regression analysis is used to compare earnings management of firms with earnings boosts and other firms.
Findings: The results indicate that firms outperforming their last year results by the end of the third quarter manipulate their earnings downwards by means of real activities manipulation, while they do not indicate income-decreasing accruals management. It is also found that, consistent with the prominent shift from accruals management to real activities manipulation, accruals management is less costly which justifies why it is used for downward manipulation.
Research limitations/implications: The results are limited to one single earnings benchmark i.e. last year earnings. Further research may individually or collectively examine other benchmarks including analysts’ forecasts.
Implications: The findings suggest that users should be more vigilant of firms exceeding their last year interim results as they could be involved in earnings management.
Originality: This study documents earnings management in a new setting where earnings boosts before the yearend trigger downward manipulation.
Original languageEnglish
JournalJournal of Applied Accounting Research
Publication statusAccepted/In press - 5 Dec 2019


  • Earnings Management
  • Real Activities Manipulation
  • Accruals Management
  • Quarterly Earnings

Fingerprint Dive into the research topics of 'Earnings Management to Avoid Earnings Boosts'. Together they form a unique fingerprint.

  • Cite this