Taking the developing Egyptian market as its focal point, the aim of this research is to contribute to the earnings management literature. Due to the limited data available for the Egyptian market, this research examines earnings management based on the entire operating performance of companies. In particular, the question of whether ineffectively performing Egyp-tian companies engage in upward earnings management by devising and applying income-increasing policies was investigated. For the purpose of testing for income-increasing accruals, we examine whether discretionary accruals are greater for ineffectively performing firms than for effectively performing firms. The results show that ineffectively performing Egyptian companies are characterized by positive and considerably greater discretionary accruals when comparatively examined against effectively performing companies. A reasonable interpretation of these results is that ineffectively performing companies engage in earnings management practices, with the most likely mechanism being an opportunistic increase in their reported earnings. Overall, the findings of this study show that operating performance is a critical determinant of earnings management. In terms of the implications of these findings, it is necessary for officials within the Egyptian government to enhance the country’s corporate govern-ance processes, especially in view of the limitations surrounding law enforcement and investor safeguards.