Campa, DomenicoCamacho Miñano, Juana María Del Mar2023-06-182023-06-1820151057521910.1016/j.irfa.2015.07.004https://hdl.handle.net/20.500.14352/23809Previous literature finds that situations that put managers under significant levels of pressure (e.g. IPO, upcoming credit rating changes, violation of debt covenant, etc.) might affect the way earnings are manipulated. The aim of this study is to investigate whether the pressure caused by the non-temporary level of financial distress, conditions the choice between real activity and discretionary accrual manipulation. Using a selection of financial distress indexes and pre-bankruptcy data of a sample of bankrupt small companies operating in a code law country, our findings show that, on average, firms with higher levels of financial distress show more extensive signs of upward earnings management through real transaction manipulation rather than accruals and vice versa. Accordingly, real activity earnings management is preferred over accruals when managers are under significant levels of ‘pressure’ such as being close to face a bankruptcy procedure, despite its implications for the firm in the long term.engjournal articlehttp://dx.doi.org/10.1016/j.irfa.2015.07.004restricted accessG33M41M21C33BankruptcyEarnings managementReal activity manipulationAccrual manipulationSMEsPanel dataEmpresasFinanzas5311 Organización y Dirección de Empresas