Literature review on the impact of real earnings management on firms’ future performance

Abstract

Real earnings management is a practice in which managers manipulate a firm's earnings figures by making suboptimal decisions about the timing and extent of underlying business activities. Real earnings management is believed to have a negative impact on a firm's future performance, but some argue that earnings management does not necessarily lead to a subsequent decline in performance. This paper aims to review the literature on the impact of real earnings management on firms' future performance through a number of studies conducted on this topic. The results show mixed evidence on the impact of earnings management on firms' future performance. The results of the review will help investors and government agencies clearly recognize the potential risks and benefits of earnings management behavior on business operations, thereby making appropriate decisions and policies.