Earnings Restatement and Real Activity Manipulation: An Empirical Research on the Overstatement Companies Claiming Higher Earnings

Increased earnings restatement in recent years has attracted investors,academics and regulatory authorities' wide attention.Exploring the deep motivation of earnings restatement has become a question that had to be solved to improve companies' accounting information quality.This paper analyses the relationship between earnings restatements and real earnings management activities by using the overstatement companies as samples.The results show that overstatement companies have low levels of cash flow from operations and high production costs compared with non-restatement companies in restated years,indicating that restatement companies have used real earnings management activities to positively manage the earnings in question.So most earnings restatement is the product of intentional earnings management.