Does Real Activities Management Influence Earnings Quality and Stock Returns in Emerging Markets? Evidence from Korea

We explore the association between real earnings management and the persistence of earnings and cash flows, respectively. Further, we investigate the effect of real earnings management on the relation between current stock returns and future earnings. Using 15,826 firm-year observations listed in the Korean stock market from 2000 to 2015, we find that real earnings management is negatively associated with the persistence of earnings. We also find that real earnings management restricts the persistence of cash flows. Lastly, we find that real earnings management prevents the market from assessing firms' future earnings reflected in the current stock prices.