In this paper, I investigate how Japanese firms respond to mark-to-market accounting from an earnings management perspective. I hypothesize, and find evidence to show, that Japanese firms offset expenses occurring from income-decreasing extraordinary items through both accruals management and real earnings management. I also present evidence that firms with growth potential tend to manage earnings by using real earnings management. I also obtain evidence that, unlike manufacturing firms, nonmanufacturing firms tend to manage earnings upward by using overproduction.
Journal of Management Accounting, Japan, 22(1), 49-68