Review of Real Earnings Management Literature

This paper summarizes the growing body of literature on the unique aspects of real earnings management as compared with accruals earnings management. Unlike accruals earnings management, real earnings management involves real business activities, consumes resources, and potentially affects future operating performance. This paper identifies studies that investigate earnings management via the manipulation of operating, investing and financing activities. This paper also discusses the associated costs and consequences of these manipulations, reviews investors’ reactions to real earnings management, and discusses the relations between accruals and real earnings management.