Real Earnings Management and Future Performance

Managers manipulate firm’s earnings through real activities to show good performance in the current period. This article determines whether there is any impact of these earnings manipulation in future financial performance or not. A panel data analysis technique generalized least square (GLS) method was used for analysis. The sample includes 119 firms listed in Karachi Stock Exchange (KSE) for the years 2004–2011. The article provides evidence that firms engaged in real earnings management (REM) activities through sales manipulation to report higher earnings have worse financial performance in future. It reveals that earnings manipulation seems helpful and appealing in current situation but creates problems in future.