This paper studies how investor sentiment affects managers’ real activities manipulation (RAM). Under the catering hypothesis, managers engage in high level of RAM to meet investors’ expectations of earnings when sentiment is high. Under the curbing hypothesis, managers are concerned about the negative impact of RAM and sentiment reversal in the future, and henceinvolve inless RAMwhen sentiment is high. We find consistent results with the curbing hypothesis. Our results are robust to alternative specifications and measures for investor sentiment and RAM.