Doing good when doing well: evidence on real earnings management

Abstract We provide evidence on earnings management by exploiting temporary exogenous shocks to utility firms’ sales arising from weather variation. find that sample are highly sensitive annual changes in average temperatures the region where firm operates, but this sensitivity disappears quickly as one moves down income statement. This evidence, while indirect, is suggestive of activities. In search direct we study charitable giving decisions firms and uncover a significant positive spending weather-driven demand shocks, behavior consistent with presence real efforts. no convincing supporting possible alternative explanations for do limited support larger giving–weather relation when incentives likely be elevated. If other similar characteristics scale proportionally giving, our findings suggest overall magnitude activities could quite substantial.