The Real Effects of Real Earnings Management: Evidence from Innovation
Posted: 28 Jun 2014 Last revised: 29 Jul 2018
Date Written: October 8, 2016
Abstract
We examine the consequences of real earnings management from an innovation perspective and investigate the patent output of firms likely to be managing earnings through altering their R&D expenditures. We find that R&D cuts related to earnings management lead to fewer patents, less influential patent output, and lower innovative efficiency, compared to other R&D cuts. Our results thus suggest that real earnings management may obstruct firms’ technological progress, and highlight the potential costs of managerial manipulation of R&D expenditures in order to alter reported earnings.
Keywords: Earnings management, real activity manipulation, patents, innovation, R&D
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