ORCID : 0000-0001-9403-0056
International Journal of Financial Studies
School of Business and Law
We examine the impact of corporate risk-taking on firm-level real earnings management. We find that firms with higher risk-taking engage in higher real earnings management. Our results are robust to a series of robustness tests, including simultaneous least squares approach, firm fixed effect, change analysis, and pseudo difference-in-difference analysis. Additional analyses reveal that the impact of risk-taking on real earnings management is more pronounced among firms that experience prior-year loss and are run by top-echelons who are risk lovers. Sarbanes-Oxley Act (SOX) regulation does not attenuate the positive effect of risk-taking on real earnings management. However, external monitoring by institutional investors and takeover susceptibility curb the relation between risk-taking and real earnings management. Our study highlights that outsider, such as investors and regulators, should pay close attention to a firm’s risk-taking behavior to unravel the extent of real earnings management in the firm.
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Alharbi, S., Al Mamun, M., & Atawnah, N. (2021). Uncovering real earnings management: Pay attention to risk-taking behavior. International Journal of Financial Studies, 9(4), article 53. https://doi.org/10.3390/ijfs9040053