ABSTRACT This paper examines how mandatory quarterly reporting affects managers' business decisions in terms of real activities manipulations. For our analyses, we use the setting of the European Union, where the reporting frequency was increased with the introduction of a mandate to issue Interim Management Statements (IMSs) on a quarterly basis. Controlling for accrual-based earnings management, we find an increase in real activities manipulations for firms mandated to switch from semiannual to quarterly IMS reporting, relative to matched control firms. This finding is in line with the notion of higher managerial short-termism resulting from increased reporting frequency requirements. Further, we provide evidence that reporting frequency-induced real activities manipulations are more pronounced if the price pressure from investors is high and if the informativeness of IMS disclosure is low. We also document that reporting frequency-induced real activities manipulations are followed by a short-term increase and then a decrease in firms' operating performance. Data Availability: Data are available from the commercial databases and public sources identified in the paper.

Abstract This paper examines earnings management in response to changes in tax planning and financial reporting incentives around the corporate income tax rate decrease from 35% to 21% enacted by Tax Cuts and Jobs Act (TCJA) of 2017. Given the higher level of book-tax conformity of real activities manipulation (RAM) relative to accrual-based earnings management (AEM), we hypothesize that firms concertedly use these techniques for different purposes. Specifically, we predict and find that firms use RAM to reduce taxable income prior to the TCJA with firms in our sample saving between $9.1 billion and $11.0 billion in taxes by shifting taxable income from the high-tax to the low-tax period. We also predict and find that firms use AEM, which has lower book-tax conformity than RAM, to simultaneously increase book income in the high-tax period. These results inform policymakers, regulators, and researchers on the economic effects of corporate tax reform.