El método Delphi

Recent empirical research provides evidence that firms use multiple earnings management strategies based on accruals and real-activities (e.g., Graham et al., 2005; Roychowdhury, 2006; Cohen and Zarowin, 2010; Gunny, 2010; Zang, 2011). For example, Roychowdhury (2006) finds evidence that managers use various forms of real- activity manipulation to avoid reporting losses; specifically, he argues that managers are providing price discounts to temporarily increase sales, overproducing to report lower costs of goods sold and reducing discretionary expenditure (such as R&D, advertising and SG&A) to report higher current earnings. Zang (2011) also finds evidence that managers use both earnings management techniques: accruals and real-activity manipulation.

Another important issue in earnings management literature is how managers choose between real-activity earnings management and accruals earnings management when they have the opportunity to use both. The idea that managers engage in real- activity manipulation and their preference for real-activity techniques rather than accruals techniques is supported by Graham et al. (2005)’s survey evidence, which indicates the widespread usage of earnings management, especially the real-activity methods. They document that:

“80% of interviewed executives state that, in order to meet an earnings target, they would decrease discretionary spending on R&D, advertising and maintenance. More than half (55%) reports that they would delay starting a new project to meet an earnings target” (Graham et al., 2005, p. 32).

Most of the prior literature on accruals and real-activity earnings management suggests that managers use these two main methods of earnings management simultaneously when they have the flexibility to engage in both (e.g., Gunny, 2005; Roychowdhury, 2006; Cohen and Zarowin, 2010). In contrast, Zang (2011) argues that there is a trade-off between accruals and real-activity earnings manipulation based on their relative costs. In this respect, she examines the simultaneity/sequentiality of real- activity and accruals manipulation and provides evidence that managers use both as substitutes in managing earnings, and also that managers change their earnings management strategies in response to the increase in costs associated with the alternative earnings manipulation technique. Specifically, evidence by Zang (2011) is consistent with managers making the real-activity earnings management decisions before the accruals earnings management decisions. Cohen et al. (2008) also find evidence that firms switched from accruals earnings management to real-activity earnings management as a result of tighter disclosure regulation (such as Sarbanes- Oxley Act). To sum up, the extant literature shows that firms may follow an overall management strategy using a mix of real-activities and accruals earnings management tools, or alternatively, they can choose between the two earnings management techniques, using the technique that is less costly for them (Cohen et al., 2008).

There are at least two reasons that possibly explain managers’ greater willingness to manipulate earnings through real-activities rather than accruals. Firstly, accruals earnings management is more likely to draw scrutiny from auditors and regulators, and potential litigation penalties than real-activities (e.g., Graham et al., 2005; Cohen and Zarowin, 2010; Zang, 2011; Roychowdhury et al., 2012). In contrast, managers possibly prefer real-activity earnings management as it is easier to camouflage as “normal” compared to accruals manipulation and detection of real-operations is

more challenging or “opaque”42 _{for investors than accruals manipulation. Unlike} accruals choices which are often subject to accounting standards, there are no clear guidelines for real-activities (Roychowdhury et al., 2012). Managers may turn to real- activity manipulation as a response to increased litigation risk and outside scrutiny (Zang, 2011). In the same line of research, Cohen et al. (2008) claim that firms tend to switch to more real-activity earnings management (which is likely to be more costly for investors, but harder to detect) due to greater regulatory focus on accruals earnings management (such as Sarbanes-Oxley Act in 2002). Furthermore, real-activities are more within the domain of the expertise of managers rather that investors and/or fiduciary agents as auditors (Roychowdhury et al., 2012).

Secondly, relying only on accruals manipulation to boost the stock price is too risky (Cohen and Zarowin, 2010) because of the limited flexibility to manage accruals and timing of earnings management. Accruals earnings management is constrained by the business operations and accruals manipulation in prior years (Barton and Simko, 2002). Thus, after all of the accruals earnings management methods to meet earnings targets are exhausted if reported earnings fall below the desired threshold, managers have no options left as real-activities cannot be undertaken at or after the end of the fiscal reporting period. Therefore, managers are expected to engage in real-activity earnings management during the fiscal year (e.g., Roychowdhury, 2004; Gunny, 2010; Zang, 2011).

Given a greater relative opacity of real-activity manipulation, more recent empirical evidence suggests that at times of heightened scrutiny, such as M&A, earnings management via accruals is unlikely to be a dominant source of overvaluation at the time of a takeover (Cohen and Zarowin, 2010; Roychowdhury et al., 2012). Cohen and

42_{According to Roychowdhury et al. (2012), relative opacity of earnings management techniques is}

defined as “the extent to which earnings management strategies succeed in misleading investors”, or “the degree to which external investors can detect and unravel their effects on earnings”.

Zarowin (2010) find that firms use both accruals earnings management and real-activity earnings management techniques around seasoned-equity offerings (SEO) and the decline in post-SEO operating performance due to real-activities is more severe than accruals earnings management. Consistent with Cohen and Zarowin (2010)’s findings, Roychowdhury et al. (2012) examine the simultaneous occurrence of accruals earnings management and real-activity earnings management around SEO years and find that managers’ propensity to engage in real-activity manipulation in SEO years is higher than their propensity to engage in accruals earnings management. Furthermore, their results suggest that real-activity manipulation has more severe consequences in the long-run, in particular post-SEO stock under-performance is more closely related and predictably linked to real-activity earnings management.

In conclusion, more recent research provides evidence that firms use multiple earnings management strategies based on accruals and real-activities, either simultaneously or sequentially and, more importantly, at times of heightened scrutiny such as M&A. Thus, earnings management via real-activities is more likely to be a dominant source of overvaluation prior to a transaction (Roychowdhury et al., 2012).