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<p>This paper examines the role of earnings management for firms that report at least
three consecutive years of annual earnings increases (hereafter earnings string firms).
Specifically, I examine how levels of earnings management change as earnings string
firms approach the end of their earnings string patterns. My results show that earnings
string firms engage in income-increasing earnings management consistent with an attempt
to stretch these earnings string patterns. I also examine whether the cumulative effect
of income-increasing earnings management activities during the earnings string period
reduces the ability of these firms to continue reporting earnings increases. I do
not find evidence to suggest that earnings string firms, on average, break their earnings
string patterns because they ran out of accounting flexibility. However, there are
two instances which the accumulated effect of income-increasing earnings management
increases the likelihood of ending the earnings string. The two instances relate to
firms which repeatedly engage in income-increasing earnings management throughout
the earnings string period, and firms whose pre-managed earnings decline in the last
year of the earnings string period. Finally, I show that firms that resume a subsequent
series of reporting at least three consecutive years of annual earnings increases,
on average, exhibit similar earnings management behavior. That is, these firms also
increasingly resort to income-increasing earnings management toward the end of their
second (or third) earnings strings.</p>
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