Earnings Management based on Real Activities Manipulation and its Impact on Future Economic Performanance (Some Evidences of Tehran Stock Exchange)

The present paper aims to investigate the impact of earnings management based on real activities manipulation on future economic performance of companies. For this purpose, financial statements of 89 companies listed on the Tehran Stock Exchange in 2007-2012 were examined. In this research, abnormal cash flow (from manipulation of sales), abnormal production (from manipulation of production), and abnormal discretionary expenses (from manipulation of discretionary expenses) have been considered as measures of earnings management based on real activities. Also, economic value added (EVA) has been considered as a measure of companies economic performance. The results obtained from the OLS (Ordinary Least Squares) method indicate that earnings management based on real activities manipulation has a negative effect on future economic performance of companies. This negative effect is stronger for earnings management through sales manipulation.