Managerial ability and real earning management - Evidence from the us market

Abstract

This study’s ultimate objective is to test the relationship between managerial ability and real earning management (REM) for the US market. We find that managerial competency has a negative impact on earning management employed by real activities for non- financial firms in the US for the period of 1987 to 2018. The evidence is consistent when we use alternative measurements for REM in the methodology. Besides, the negative association is robust when we use aggregate measures by composing different measures of REM, which suggest a simultaneous engagement of real activities manipulation. Paying close attention to this topic will lead to more accurate decisions by stakeholders because they can learn a lot about the firm’s earnings management strategy by looking at the news and ranking of managerial competency of a firm.