The Impact Of Real Earnings Management On Subsequent Managerial Performance

With the development of our country’s accounting standards and securities supervision, there’re more and more restrictions and risks on the traditional accrual earnings management. Then executives preferred real earnings management to meet their earnings benchmark. Otherwise excessive real earnings management can whitewash accounting statements but apparently that it’s harmful to the capital market.There have been a large number of papers confirmed the existence of real earnings management. Empirical research abroad in recent years has shown that a variety of real earnings management (such as the reduction in R&D expenditures, through a temporary increase in the sales promotion, overproduction and so on) has increased by significantly. Compared to the accounting earnings management, real earnings management behavior is more subtle. But the impact of real earning management on future operating performance is still unified and lack of systematicness. The article has carried out investigation and discussion studying on this problem.On the view of real earnings management and with the sample of the financial data of A-shares listed companies in China, the article evaluated the abnormal levels of discretionary expenditure, the production cost and cash flow then estimated whether real earnings management has impacts on firms’subsequent financial performance and market performance.The empirical results indicate that firms that take real earnings management by engaging in cutting discretionary investment of R&D and adminisstrative expenses to decrease expense, cutting prices or extending more lenient credit terms to boost sales have significantly lower subsequent managerial performance than firms that do not engage in RM. The firms that cut discretionary investment to meet earning benchmark has better market performance. Under the theory of "information asymmetry", it’s maybe that the market didn’t realize the executives’real earnings management. The empirical research shows that RM has negative influences on both future financial performance and market performance.