Revenue management: The use of order backlog to meet revenue reporting targets

Prior studies show that the market rewards companies that meet earnings and revenue reporting targets. While findings of earnings management are abundant, the extant literature does not show that managers can smooth revenue recognition without violating GAAP. This study investigates the use of order backlog to manage revenue reporting. My results show that managers use order backlog to report positive revenue growth, to smooth revenue reporting, and to meet analysts' revenue forecasts. Managers also use order backlog to limit the magnitude of large positive forecast surprises and in so doing delay revenue recognition. This study adds to the earnings management literature, which typically focuses on earnings, by showing that managers also manipulate reporting to meet revenue targets. An implication of this study is that more expansive order backlog disclosure requirements could bring greater transparency to this type of revenue manipulation.