The Real Effects of Real Earnings Management: Evidence from Innovation

Posted: 28 Jun 2014 Last revised: 29 Jul 2018

See all articles by Fred Bereskin

Fred Bereskin

University of Missouri

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance; National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Wendy Rotenberg

University of Toronto - Rotman School of Management

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

Suggested Citation

Bereskin, Frederick L. and Hsu, Po-Hsuan and Rotenberg, Wendy, The Real Effects of Real Earnings Management: Evidence from Innovation (October 8, 2016). Contemporary Accounting Research, Vol. 35, No. 1, 2018, Rotman School of Management Working Paper No. 2459693, Available at SSRN: https://ssrn.com/abstract=2459693 or http://dx.doi.org/10.2139/ssrn.2459693

Frederick L. Bereskin (Contact Author)

University of Missouri ( email )

Columbia, MO 65203
United States

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Wendy Rotenberg

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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