Journal of Business & Economic Policy

Corporate Reputation and Real Activities Management, Evidence from an Emerging Economy
Hümeyra Adıgüzel, Deniz Özbay

Abstract
This study examines whether reputable firms in a developing country behave differently from other firms when manipulating real activities to achieve self-interested goals. We use three different proxies for real earnings management activities: (1) abnormal discretionary expenses (2) abnormal levels of operating cash flows; (3) abnormal production costs. We proposed a scale which is formed by different scales proposed by previous researches for measuring corporate reputation. We find that reputable firms in a developing country are less likely to manipulate real activities. The results are consistent with the premise that the desire to protect reputation encourages firms and their managers to constrain socially unacceptable activities.

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