The relation between real earnings management and managers error in earnings per share forecast

Abstract

There are various researches on accruals-based earnings management. The earnings management can be done by accruals or real activities or both of them. A few studies are conducted on the survey of the relationship between earnings management via real activities and managers’ error in earnings per share forecast. The present study aimed to answer the question “Is there any association between the criteria of earnings management based on real activities, abnormal cash flow from operations, abnormal production expenses and abnormal discretionary expenses with the managers’ error in earnings per share forecast?” To do this, a sample of 96 companies in stock exchange market was selected and the data of 2005-2011 were extracted. The results of the study showed that real activities management to increase (reduce) the real earnings to achieve the forecast earnings leads to reduction (increase) of the abnormal cash flow from operations and abnormal discretionary expenses compared to the normal conditions. In addition, there was no significant relation between abnormal production expenses with the managers’ error in earnings per share forecast.