Managing the Bottom Line: A Path to Higher Shareholder Returns?

This study investigates the impact of earnings management on shareholder returns among public companies listed on the Warsaw Stock Exchange (WSE) whose shares were traded throughout the 2014–2023 period. We run multiple linear regression with a stepwise procedure to examine how accrual-based earnings management (AEM) and real earnings management (REM) influence both traditional total shareholder return (TSR) and its relative version (RTSR). Our findings indicate that both earnings altering strategies have statistically significant negative effects on TSR and RTSR, suggesting that investors may penalize firms engaging in earnings manipulation. Among firm-specific control variables, we found that variables such as asset tangibility, short-term debt, and return on assets (ROA) also significantly affect shareholder returns. Thus, we confirmed prior research and support agency theory, emphasizing that managerial actions aimed at manipulating reported earnings can harm shareholder value. Despite modest explanatory power typical for market-based models, our results appear noteworthy and underscore the critical role of incorporating earnings management metrics in investment analysis and valuation models, suggesting such practices serve as salient risk signals for investors.