This paper examines whether there is a direct association between the extent of dividend conservatism and real activities as well as accruals-based earnings management. The extent of dividend conservatism is defined as the deviation of actual dividend payments from the level that would be paid by applying the firm’s target payout ratio to current pre-managed earnings. Analyzing the discretionary expenditures model and the discretionary accruals model, the paper documents a positive relation between the deviation and earnings management proxies, and the results hold in years of pre-managed earnings increases and decreases. The findings are consistent with the notion that dividend conservatism has an incremental effect on both real activities and accrual-based earnings management. In addition, the paper shows that payers are more likely to make partial upward (downward) adjustment in dividends than full adjustment as predicted by pre-managed earnings increase (decrease), providing support to the survey evidence of dividend conservatism.