| dc.description.abstract | In this study, I examine the relation between managerial ability and real earnings management (REM). I find that firms engaging in production REM have significantly worse subsequent firm performance than do other firms. And this adverse impact of production REM lasts at least three periods. I also find that firms engage in discretionary expense REM have significantly better subsequent firms performance than do others. Then I investigate the role that managerial ability plays in REM and find evidence showing that the impact of REM on future firm performance varies cross-sectionally with managerial ability. Specifically, more able managers decrease the negative impact of aggregate REM. Given that more able managers are expected to better understand the economics of their business and make better decisions, these managers' decisions to engage in REM are less harmful to future firm performance. I further investigate under which circumstances more able managers will mitigate the negative impact of production REM and find that managers of growth firms, managers of manufacturing firms, managers of young firms and managers of no analyst following firms are able to reduce the negative effect of aggregate REM. On the other hand, I find that managers of mature firms, managers of bloated balance sheet firms, managers of old firms and managers of analyst following firms can not reduce the negative effect of REM. | |
