Main subject of this paper is to understand whether there could be an incentive for
managers to manipulate cash flow from operating activities (CFO) through the use of real
earnings management (REM), in situations with increasing leverage. Based upon a study of
Jelinek (2007) who researched the correlation between increasing levels of leverage and
accrual earnings management, I developed my main hypothesis with respect to the effect
of leverage increases on REM to influence CFO. Results indicate that in leverage increasing
firms, the leverage results in REM, in order to affect CFO, when using the absolute value of
long term debt in calculating leverage
