Three essays on real earnings management

This dissertation contains three essays on real earnings management. The first essay reviews extant literature on real earnings management. The second and third essay is empirical studies that investigate the costs and consequences of real earnings management.;The first essay summarizes the growing body of literature on the unique aspects of real earnings management as compared with accruals earnings management. This paper discusses the relations between accruals and real earnings management, lists the various business activities subject to manipulation, documents the costs and consequences of manipulation of business activities, and reviews investors' reactions to real earnings management.;The second essay examines two issues related to earnings management through stock repurchases. Specifically, the study investigates: (1) whether firms with constraints in their ability to inflate accruals are more likely to use stock repurchases as a tool to manage earnings, and (2) whether firms that attempt to increase EPS to meet analyst forecasts through stock repurchases tend to pay a relatively higher price for their stock than firms that repurchase stock for other purposes, such as to benefit from temporary undervaluation of their stock. The research questions are tested using logit and tobit regression models with quarterly data from 1992 to 2001. The empirical test results are consistent with the hypotheses. The study contributes to the earnings management literature by documenting substitution of alternative means of earnings management and by examining one of the economic consequences of earnings management through stock repurchases.;The third essay investigates whether firms that manipulate their business operations to meet analyst earnings forecasts experience a decline in their subsequent operating performance. Matched sample analysis and regression analysis are implemented to examine the effects of real earnings management on firms' future performance. Empirical test results demonstrate that manipulations of operating activities to meet analyst forecasts do not have significant negative consequences on firms' subsequent operating performance. The findings of the study enhance our understanding of the process through which management evaluates the costs and benefits of real earnings management.