Substitution between Accrual- Based Earnings Management and Real Activities Manipulation – A Commentary and Guidance for Future Research

Considering the voluminous published research confirming and extending the original findings of Cohen, Dey, Lys (2008), we conclude that Pincus, Wu, and Hwang (2022, this issue) make, at best, only a modest contribution to the earnings management literature. Specifically, their analysis does not incorporate recent advances in the earnings management literature, especially the measurement and estimation of real earnings management activities and the incorporation of the changing information environment. As a result, we conclude that Pincus, Wu, and Hwang results and conclusions with regards to the substitution between accrual-based and real earnings management activities should be interpreted with caution