We examine changes in firms’ discretionary accounting accruals around the commencement of activism by hedge funds. We argue that hedge funds have the potential to provide increased monitoring of earnings management behavior and we predict and find empirically that average discretionary accruals decrease around the commencement of hedge fund activism. We find in both univariate and multivariate tests that discretionary accruals decline significantly after commencement of hedge fund activism, suggesting activist hedge funds do provide at least some incremental monitoring of accounting and reporting in addition to their focus on the governance, operations and financing of target firms. However, we find no cross-sectional relationship between changes in earnings management and analyst following, institutional ownership or other factors, suggesting that the accounting improvements are not conditional on these factors but are instead a general benefit resulting from the intervention of activist hedge funds.