Future Operating Performance Literature Review

572 One of the prior research which examine real activities manipulation is research from Roychowdhury 2006 which examine the impact of earnings management through real activities manipulation on operating cash flows. Firms that reports low earnings is categorized as suspect firms, that is firms inclined of doing earnings management, because firms with low earnings tend to do earnings management by increasing earnings. The model used by Roychowdhury 2006 is Dechow, Kothari, and Watts 1998 model to estimate normal operating cash flows or expected operating cash flows. After estimating the normal operating cash flows, the deviation between actual and normal operating cash flows is calculated which be called abnormal operating cash flows. Roychowhury 2006 finds that real activities manipulation has impact on operating cash flows, that is firms doing real activities manipulation report abnormal operating cash flows compared to firms which is not detected of doing real activities manipulation. Prior research which examine real activities manipulation and future operating performance is Gunny‘s β005 research. Gunny β005 investigates the consequences of real activities manipulation on operating performance in future period. The result indicates that firms doing real activities manipulation will find earnings and operating cash flows decreasing significantly in future period. In her research, Gunny 2005 uses performance-matching approach which the performance of each firms inclined of doing real activities manipulation compared to firms inclined of not doing real activities manipulation compared firms in the same year. Research in Indonesia that examine real activities manipulation in relation to future performance were done by Rahman 2007 and Oktorina 2008. Rahman 2007 identifies real activities manipulation and accrual manipulation and also its impact on market and operating performance of IPO firms. The result shows that the motivation of earnings management when IPO is using discretionary accrual proxy, but not using real activities manipulation proxy. Oktorina β008 identifies the firm‘s tendency to execute real activities manipulation through cash flow and its impact to market performance. The result shows that firm tend to execute real activities manipulation through operating cash flowbut not through investing and financing cash flow. Moreover, the impact of real activities manipulation on