In this paper, we attempt to identify the effect of high dividend payouts on earnings management by examining discretionary accruals and real earnings management. Firms experience pressure to payout dividends from institutional and foreign investors who pursue investments in firms with a high dividend policy. In such cases, managers execute high dividend payouts to meet expectations. However, in the face of lower income or losses, it will be more difficult for managers to justify the high payout of dividends to stakeholders. Therefore, firms will prefer to payout dividends when there is sufficient income. In turn, managers are likely to depend on earnings management as a means to increase the income from which dividends are paid. Under this rationale, we study the effect of high dividend payouts on earnings management.