• Asia-Pacific Journal of Business
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• v.15 no.3
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• pp.309-323
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• 2024

Purpose - This study investigates whether firms engage in Real Earnings Management surrounding preliminary earnings announcements when experiencing a reversal of accounting earnings signs. Design/methodology/approach - We use ordinary least squares regression analysis to examine the association between the reversal of accounting earnings signs and three measures of REM(abnormal operating cash flows, abnormal discretionary expenses, and abnormal production costs). Findings - Our findings indicate that both profit-to-loss and loss-to-profit reversals are positively associated with all three measures of REM. This suggests that managers use various REM activities to mitigate negative consequences or enhance positive perceptions associated with earnings reversals. Research implications or Originality - This study provides new insights into the relationship between preliminary earnings announcements and REM by documenting that the reversal of accounting earnings signs is a significant determinant of managers' REM decisions. Our findings highlight the importance of scrutinizing REM activities surrounding preliminary earnings announcements, particularly when firms experience a reversal of accounting earnings signs.