One means of managing earnings is by manipulation of accruals with no direct cash
flow consequences. Managers also have incentives to manipulate real activities. This paper
investigates management of operational activities. We sample 204 firms between 1997 and
2003 including 876 firm/year. We use Dechow et al. (1998) and Rochowdhury (2006)`s
model. We focus on the three manipulation methods: Sales manipulation, reduction of
discretionary expenditures, and overproduction. Cross sectional analysis reveals that
companies with low manipulate operational activities avoid loss. The companies do this by
mean sales discount and overproduction.
