ISSN: 2225-8329
Open access
Purpose – This study aims to investigate the mediating impact of audit quality on the relationship between financial indicators and earnings management.
Design/methodology/approach – The research uses panel date method to test the relationship between financial factors and earnings management. The sample consists of 930 firm-year observations for 93 listed companies in the Amman Stock Exchange for the years from 2009 to 2018. STATA software is used for regression analysis, Baron, and Kenny’s model used to test the significance of the mediating effect.
Findings- The empirical findings of the study showed that earnings management is positively associated with earnings per share. Moreover, the findings showed that debt to equity is negatively associated with earnings management. Regarding the mediation role of audit quality, the results revealed that audit fees fully mediate the association between financial structure ability and earnings management and partially mediate the association between earnings ability and earnings management.
Research limitations– The current study has some limitations. First, the study sample was limited to Jordon market. Therefore, the study results may not be generalized outside Jordon market. Another limitation is that audit fees are used as a mediator variable. Future studies may use different audit quality factors such as auditor size or audit opinion. Finally, financial factors are limited to earnings per share, debt to equity and current ratio and future studies may apply to other financial indicators such as cash ratio, leverage ratios and turn in equity ratio.
Practical implications: The findings of the current study have implications for policymakers and investors. Policymakers to ensure high financial reporting quality they may demand for high audit quality regardless the audit cost. In addition, investors may benefit from the findings of this study. They can format their decisions based on the level of financial factors.
Originality/value – This study contributes to the knowledge by investigating the role of audit quality on mediating the association between financial factors and earnings management on Jordon market. Moreover, the current study is the initial study that investigates the relationship between financial factors and earnings management by using Jordon settings.
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In-Text Citation: (Alawadi & Rashid, 2023)
To Cite this Article: Alawadi, H., & Rashid, N. (2023). Unveiling Earnings Management Strategies Through Financial Ratios: A Comprehensive Investigation of Audit Quality’s Mediating Role in Jordan’s Financial Landscape. International Journal of Academic Research in Accounting Finance and Management Sciences, 13(2), 286–299.
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