This study examines whether real earnings management through actual operating activities occurs to avoid reporting losses, and analyzes the means of real earnings management. The results show that groups with earnings slightly above zero report statistically significantly lower abnormal operating cash flows and abnormal discretionary expenditures, and higher abnormal production costs compared to other groups, indicating that real earnings management to avoid loss reporting does occur. Since the overproduction strategy for earnings management is available only to firms in the manufacturing sector, the analysis of loss avoidance through earnings management targeting manufacturing firms reveals that manufacturing firms do engage in real earnings management using the overproduction strategy. When performance-matched abnormal operating cash flows, performance-matched abnormal discretionary expenditures, and performance-matched abnormal production costs were used to control for the effect of firm performance, the same results were observed. Additionally, to verify whether firms with reported earnings slightly above zero participated in real earnings management, the relationship between real earnings management and subsequent-period returns was analyzed, revealing that real earnings management had a negative effect on subsequent-period returns. This indicates that the reported earnings of firms slightly exceeding zero are the result of real earnings management rather than the outcome of genuine operating activities. Furthermore, to examine whether market participants recognize the consequences of real earnings management, the relationship between real earnings management and current-period and subsequent-period size-adjusted returns was analyzed. The results show that real earnings management had no significant relationship with either current-period or subsequent-period size-adjusted returns, indicating that the market does not recognize the consequences of real earnings management. The fact that the market does not show differential reactions to firms that avoided loss reporting through real earnings management suggests that firms may have incentives to engage in real earnings management. These findings are significant in that they discover managers' actual activities related to earnings management, which have rarely been addressed in prior research, and contribute to elucidating the relationship between resource flows and earnings management by examining the effects of real earnings management through actual operating activities on operating cash flows, discretionary expenditures, and production costs. Moreover, by examining whether market participants recognize the consequences of real earnings management, this study provides an opportunity to evaluate how market reactions differ depending on the method of earnings management.