"The finding that abnormal selling can be contemporaneous with -- rather than subsequent to earnings management suggests that Section 304 of the Sarbanes-Oxley Act may not be an effective deterrent in firms with deteriorating performance," they write.

"Earnings management in distressed firms is more likely to reflect a desire to avoid litigation ('dump and pump') rather than to sell at higher prices," they add. This is why "abnormal selling" in these firms occurs before rather than after earnings management.