The incentives of engaging in earnings management varies depending on the business environment. In this study, we explore the tendency of earnings management of rehabilitation firms based on time-series investigation. There are few studies who examine earnings management of rehabilitation firms. In particular, previous studies related to the rehabilitation process have focused on the firm performance after the completion of rehabilitation procedure. To the best of our knowledge, none of them directly examine the earnings management throughout the rehabilitation process. Therefore, this study investigates the earnings management of rehabilitation firms by using the time series method. Specifically, we divide the procedure into 5 steps which are: the year immediately preceding the start year (- 1 year), the start year, the progress year, the ending year, and the immediately following year after closing the procedure (+ 1 year). The results of this study are as follows. We first document significant negative relations between the discretionary accruals and the year -1 and the start year compare to control group. In contrast, significant and positive discretionary accruals are observed during the progress year. We also find evidence of positive earnings management at the progress year using performance matched discretionary accruals. We interpret this finding as the presence of incentive for the manager to overestimate earnings for the early termination of the rehabilitation process. Moreover, this higher discretionary accruals at the progress year incrementally decreases as the leverage ratio increases. Increasing leverage ratio may reflect the increase in creditors" right to intervene the process, thereby restrict the incentive for management to manipulate reported earnings. Our findings are consistent in the results of using different samples as a control group and in the two-stage regression analysis models applied to control existing endogeneity issues in our models. Collectively, our study contributes to the literature and practice by finding significant earnings management during the rehabilitation process. However, this study has a limitation that the number of samples of rehabilitation firms is too small. We expect that the data will be accumulated through subsequent studies to overcome this limitation in the sample selection.