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Earnings management is “the purposeful intervention in the external financial reporting process with the
intent of obtaining some private gain” (Schipper, 1989). It is the act usually done by the managers.In a
wide angle “earnings management occurs when managers use judgment in financial reporting and in
structuring transactions to alter financial reports to either mislead some stakeholders about the underlying
economic performance of the company or to influence contractual outcomes that depend on reported
accounting numbers.” (Healy and Wahlen, 1999).Some level of flexibility and discretion in the use of
accounting rules are available in Generally Accepted Accounting Principles (GAAP)while reporting the
financial results. These flexibility allows managers to opportunistically engage in earnings management.
This managerial opportunistic intervention misleads the stakeholders by providing an untrue financial