Focusing on real earnings management behavior in R&D activities, this paper finds that the reversal ofR&D spending after abnormal reduction is a more accurate measurement of the real earnings management behavior in R&D activities. Take the Shanghai and Shenzhen A-share listed companies in 2008 to 2018 as samples, to explore the relationship among market competition environment, real earnings management behavior and future performance of companies. The empirical results show that: Compared with companies that do not reverse the abnormal R&D spending reduction, the reversal behavior after the abnormal reduction are associated with lower future operating performance; Intense competition in the industry intensified the damage of reversal to future operating performance; The company’s competitive advantage in the industry can however, alleviate this damage. Further analysis shows that high-quality auditing has a restraining effect on the reversal of R&D spending after abnormal reduction. The results provide an empirical basis for real earnings management to restrain management’s R&D manipulation.