Revenue management through order backlog manipulations

Considerable evidence suggests the high importance of revenues to analysts and investors, which incentivizes managers to manage revenues. Research suggests managers engage in both accrual and real activities management to manage revenue. We examine whether managers exploit the order fulfillment process (a form of real activities management) to meet or beat revenue targets. Our evidence suggests that managers manipulate order backlog to avoid reporting a decline in revenue and to meet or beat analysts’ revenue forecasts. Cross-sectional analyses suggest managers are more likely to manipulate order fulfillment when incentives to report revenue growth are high and when the costs of adjusting order fulfillment are low. Counterfactual tests suggest that only firms that meet revenue thresholds by small amounts have abnormally low ending order backlog. Our inferences are robust to alternative models of normal order backlog and alternative methods of estimation. Our study provides evidence that managers adjust order fulfillment to manage reported revenues across thresholds. Our evidence is relevant to regulators who determine order backlog disclosures and other stakeholders who use financial report data.