Main subject of this paper is to understand whether there could be an incentive for managers to manipulate cash flow from operating activities (CFO) through the use of real earnings management (REM), in situations with increasing leverage. Based upon a study of Jelinek (2007) who researched the correlation between increasing levels of leverage and accrual earnings management, I developed my main hypothesis with respect to the effect of leverage increases on REM to influence CFO. Results indicate that in leverage increasing firms, the leverage results in REM, in order to affect CFO, when using the absolute value of long term debt in calculating leverage.

Erasmus MC: University Medical Center Rotterdam
Erasmus School of Economics

Zagers-Mamedova, I. (2009). The effect of leverage increases on real earnings management. Retrieved from