Management of Earnings through the Manipulation of Real Activities That Affect Cash Flow from Operations

  title={Management of Earnings through the Manipulation of Real Activities That Affect Cash Flow from Operations},
  author={Sugata Roychowdhury},
Most of the current research on earnings management focuses on the detection of abnormal accruals. The purpose of this study is to detect manipulation of real activities to meet earnings targets. I analyze cash flow from operations (CFO), production costs and discretionary expenses. Using a simple model to determine the normal levels of these variables, I detect abnormally low CFO and abnormally high production costs for companies that report small positive profits at the annual level. The… CONTINUE READING
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