Earnings Management or Earnings Manipulation?

Abstract

Earnings management is the strategic use of accounting principles to manipulate financial reports and influence external stakeholders' perceptions of a company's financial position. This chapter conducts a narrative review of the literature examining the long-term impact of earnings management on future profitability. It focuses on two main dimensions: accrual earnings management (AEM) and real earnings management (REM) techniques, exploring the motives and incentives driving companies towards this practice. The chapter seeks to contribute to discussions on earnings management and its implications for long-term profitability while emphasizing the need for systematic research on various forms of earnings management and their effects on a company's reputation, economic performance, and financial stability. Additionally, the chapter includes relevant case studies from previous literature to illuminate the effects of earnings management on corporations and other organizations.