This paper examines whether managers’ decisions to engage in income-increasing earnings management are sensitive to discount rates. Rational managers are expected to pursue and favor strategies that maximize their own gains, even at the expense of other stakeholders (Jensen & Meckling, 1976). Financial reporting provides one way to serve self-interests, particularly when information asymmetry exists between users and providers of the reports. Managers can take accounting or real economic actions to manage short-term performance and, consequently, serve self-interests e.g. by triggering earnings-based performance compensation (Gaver, Gaver, & Austin, 1995; Healy, 1985; Holthausen, Larcker, & Sloan, 1995; Watts & Zimmerman, 1986) to meet capital market expectations (Eames, 1998) or prior to IPOs (Teoh, Welch, & Wong, 1998). There is considerable empirical evidence showing that managerial self-interests affect their decision horizon. For example, CEOs respond to personal earnings-based incentives by engaging in short-term performance-enhancing activities, rather than long-term value creation that would benefit shareholders (Bergstresser & Philippon, 2006; Dechow & Sloan, 1991). Similarly, shorter expected CEO tenure has been associated with higher agency costs, lower earnings quality, and greater probability of information-based trading, providing evidence that shorter decision horizons motivate managers to invest in projects with quicker payback (Antia, Pantzalis, & Park, 2010; Gopalan, Milbourn, Song, & Thakor, 2014). The purpose of this paper is to examine whether discount rates affect rational managers’ decisions to manage earnings for a given decision horizon. To increase current earnings managers may exercise their discretion over accruals or real business decisions. The use of income-increasing accruals-based earnings management or real earnings management to inflate earnings is a short-horizon strategy because of two factors: 1) the reversal of discretionary accruals and real consequences of operational decisions, and 2) managers’ reputation risk. First, using accounting discretion related to income-increasing accruals in the current period constrains the ability to manage accruals in the same direction in future periods (Baber, Sok-Hyon, & Ying, 2011; Barton & Simko, 2002; DeFond & Park, 2001). That is, accruals must reverse at some point (Rangan, 1998), unless managers employ even more aggressive earnings management. Similarly, increasing earnings with real business actions is also a short-horizon strategy (Cohen & Zarowin, 2010). Earnings management by real business actions, for example via channel-stuffing increase current cash flow by bringing forward future cash flows. Second, both earnings management strategies are likely to alert analysts, auditors and the press. This increases the risk of reputation loss and labor-market disciplining and pose a threat for managers’ future net benefits (Brickley, Linck, & Coles, 1999; Davidson, Xie, Xu, & Ning, 2007; Kaplan, McElroy, Ravenscroft, & Shrader, 2007).