ISSN: 2225-8329
Open access
Purpose – This study aims to investigate the impact of financial indicators on earnings management.
Design/methodology/approach – Panel data is the method applied to test the association between financial indicators and earnings management in this study. The study sample is 930 observations covering 93 non-financial listed companied in Jordon market for the period 2009-2018. Regression analysis is conducted by using STATA statistical software.
Findings- The empirical findings of the study reported that earnings per share is positively associated with earnings management. Also, the findings presented that earnings management are negatively associated with debt to equity and current ration. However, no evidence found on the relationship between dividend percentage and earnings management.
Research limitations– This study is exposed to some limitations. First, the study sample was limited to Amman Stock Exchange. Thus, the results of the study cannot be generalized to other markets. Second, earnings management was measured by using Kothari et al. (2005) model. Future studies may use another proxy for earnings management. Finally, financial indicators in this study are limited to earnings per share, debt to equity and current ratio and future research may use another financial ratio such as turn in equity ratio, leverage ratio and cash ratio.
Practical implications: The findings of the current study have implications for investors. Investors may be more attractive to the companies that have strong financial indicators since these companies are more likely to have a strong financial position.
Originality/value – The current study adds to the knowledge as being the initial effort made to find empirical evidence in Middle East and in Jordon especially about the effect of financial indicators on earnings management.
Abdul Rahman, R., Ali, H. M. F., Haniffa, R., Rahman, R. A., & Ali, F. H. M. (2006). Board, audit committee, culture and earnings management: Malaysian evidence. Managerial Auditing Journal, 21(7), 783–804. https://doi.org/10.1108/02686900610680549
Al-Rassas, A. H. (2015). Internal monitoring mechanisms and earnings quality: Empirical evidence from Malaysia. Universiti Utara Malaysia.
Almasarwah, A. (2015). Earnings management and its relationship with corporate governance mechanisms in Jordanian industrial firms. Loughborough University.
Alshare, H. F., Kadir, M. R. B. A., Kamarudin, K. A., & Hassan, H. B. (2023). Auditor Tenure, CEO Compensation and Earnings Management: Evidence from Jordan. WSEAS Transactions on Business and Economics, 20, 172–180.
Arasteh, F., Nourbakhsh, M. M., & Pourali, M. R. (2013). The study of relationship between capital structure, firm growth and financial strength with financial leverage of the company listed in Tehran Stock Exchange. Interdisciplinary Journal of Contemporary Research in Business, 5(7), 480.
Asif, A., Rasool, W., & Kamal, Y. (2011). Impact of financial leverage on dividend policy: Empirical evidence from Karachi Stock Exchange-listed companies. African Journal of Business Management, 5(4), 1312–1324.
Ayedh, A. M. (2013). Audit Quality Determinants and Their Effect on Earnings Management During the Global Financial Crisis. International Islamic University Malaysia.
Baatwah, S. R. (2014). The Effect Of Culture, Corporate Governance Quality, And Management Characteristics On The Timeliness Of Financial Reporting: Evidence From Oman. University Malaysia Terengganu.
Baatwah, S. R., Salleh, Z., & Ahmad, N. (2015). CEO characteristics and audit report timeliness: do CEO tenure and financial expertise matter? Managerial Auditing Journal.
Booth, P. (2014). Monetary policy, asset prices and financial institutions. Annals of Actuarial Science, 8(1), 9–41.
Chen, M. Y. (2011). Predicting corporate financial distress based on integration of decision tree classification and logistic regression. Expert Systems with Applications, 38(9), 11261–11272. https://doi.org/10.1016/j.eswa.2011.02.173
Delen, D., Kuzey, C., & Uyar, A. (2013). Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications, 40(10), 3970–3983. https://doi.org/10.1016/j.eswa.2013.01.012
Dilla, W. N., Janvrin, D. J., & Jeffrey, C. (2014). Pro forma accounting disclosures: The effect of reconciliations and financial reporting knowledge on nonprofessional investors’ judgments. Advances in Accounting, 30(1), 43–54.
Evangelinos, K. I., & Skouloudis, A. (2014). European perspectives on corporate non-financial disclosure: Evidence from the Southeast. International Journal of Disclosure and Governance, 11(1), 33–53.
Fang, Y., Fornaro, J., Li, L., & Zhu, Y. (2018). The impact of accounting laws and standards on bank risks: Evidence from transition countries. Journal of Economics and Business, 95, 103–118.
Gujarati N., D., & Porter, D. C. (2009). Basic Econometrics, 5th ed.,. McGraw-Hill/Irwin, New York, NY.
Gullkvist, B., & Jokipii, A. (2013). Perceived importance of red flags across fraud types. Critical Perspectives on Accounting, 24(1), 44–61. https://doi.org/10.1016/j.cpa.2012.01.004
He, W., Ng, L., Zaiats, N., & Zhang, B. (2017). Dividend policy and earnings management across countries. Journal of Corporate Finance, 42, 267–286. https://doi.org/10.1016/j.jcorpfin.2016.11.014
Healy, P. M., & Wahlen, J. M. (1999). A Review of the Earnings Management Literature and Its. Accounting Horizons, 13(4), 365–383. https://doi.org/10.2308/acch.1999.13.4.365
Jackson, S. B., Keune, T. M., & Salzsieder, L. (2013). Debt, equity, and capital investment. Journal of Accounting and Economics, 56(2–3), 291–310. https://doi.org/10.1016/j.jacceco.2013.09.001
Kapoor, N., & Goel, S. (2017). Board characteristics, firm profitability and earnings management: evidence from India. Australian Accounting Review, 27(2), 180–194.
Kent, P., Routledge, J., & Stewart, J. (2010). Innate and discretionary accruals quality and corporate governance. Accounting & Finance, 50(1), 171–195.
Kent, R., & Routledge, J. (2017). Use of benchmarks in predicting earnings management? Accounting and Finance, 57(1), 239–260. https://doi.org/10.1111/acfi.12130
Kliestik, T., Belas, J., Valaskova, K., Nica, E., & Durana, P. (2021). Earnings management in V4 countries: The evidence of earnings smoothing and inflating. Economic Research-Ekonomska Istraživanja, 34(1), 1452–1470.
Kothari, S. P., Leone, A. J., & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, 39(1), 163–197. https://doi.org/10.1016/j.jacceco.2004.11.002
Kumar, S., Kaushik, N., & Verma, A. (2021). Does earnings management impact firm performance? Empirical evidence from India. Afro-Asian Journal of Finance and Accounting, 11(4), 471–489.
Liu, J., & Switzer, L. N. (2013). Convertible Bond Issuance, Risk, and Firm Financial Policy: A New Approach. International Journal of Business, 18(1), 1.
Lo, K. (2008). Earnings management and earnings quality. Journal of Accounting and Economics, 45(2–3), 350–357. https://doi.org/10.1016/j.jacceco.2007.08.002
Malinic, D., Dencic-Mihajlov, K., & Ljubenovic, E. (2013). The determinants of capital structure in emerging capital markets: Evidence from Serbia. European Research Studies, 16(2), 98.
Miloud, T. (2014). Earnings management and initial public offerings: an empirical analysis. Journal of Applied Business Research, 30(1), 117. Retrieved from http://www.cluteinstitute.com/ojs/index.php/JABR/article/viewFile/8288/8320
Mnif, Y., & Cherif, I. (2021). Female board directorship and earnings management. Pacific Accounting Review, 33(1), 114–141.
Omar, N., & Rizuan, S. (2014). Financial Deceitful Trick through Dividend Smoothing. Procedia - Social and Behavioral Sciences, 145(Koskivaara 2004), 300–307. https://doi.org/10.1016/j.sbspro.2014.06.038
Rahman, R. A., & Anwar, I. S. K. (2014). Effectiveness of Fraud Prevention and Detection Techniques in Malaysian Islamic Banks. Procedia - Social and Behavioral Sciences, 145, 97–102. https://doi.org/10.1016/j.sbspro.2014.06.015
Rashid, N. M. N. N. M. (2017). Earnings management and corporate tax planning and their impacts on firm value. UNIVERSITI TEKNOLOGI MARA.
Rashid, N., Noor, R. M., Matsuki, N., AbRahman, N. A., Omar, N., & Rashid, N. M. N. N. M., Noor, R. M., Matsuki, N., AbRahman, N. A., & Omar, N. (2016). The Longitudinal Study of Earnings Management: Analysis on Companies Financial Abilities. Procedia Economics and Finance, 35(16), 136–145. https://doi.org/10.1016/S2212-5671(16)00018-6
Schipper, K. (1989). Commentary on earnings management. Accounting Horizons, 3(4), 91–102.
Shiri, M. M., Salehi, M., & Khalatbari, H. (2013). A Study of the Impact of Equity Overvaluation on Earnings Management?: Iranian Overview. International Management Review, 9(2), 70–83.
Shubita, M. (2013). The forecasting ability of earnings and operating cash flow. Interdisciplinary Journal of Contemporary Research in Business, 5(3), 442–456.
Skouloudis, A., Jones, N., Malesios, C., & Evangelinos, K. (2014). Trends and determinants of corporate non-financial disclosure in Greece. Journal of Cleaner Production, 68, 174–188.
Tagkalakis, A. O. (2014). Financial stability indicators and public debt developments. The Quarterly Review of Economics and Finance, 54(2), 158–179.
Tan, H. C., & Jamal, K. (2006). Effect of accounting discretion on ability of managers to smooth earnings. Journal of Accounting and Public Policy, 25(5), 554–573. https://doi.org/10.1016/j.jaccpubpol.2006.07.007
Wang, J. Y. (2014). Controlling shareholder entrenchment: Bonuses versus dividends. International Review of Economics and Finance, 32, 143–158. https://doi.org/10.1016/j.iref.2014.01.012
Wang, Z., & Zhu, W. (2013). Equity financing constraints and corporate capital structure: a model. China Finance Review International, 3(4), 322–339.
In-Text Citation: (Alawadi & Rashid, 2023)
To Cite this Article: Alawadi, H., & Rashid, N. (2023). Financial Indicators and Earnings Management: A Comprehensive Panel Data Analysis of Jordan’s Non-Financial Companies. International Journal of Academic Research in Accounting Finance and Management Sciences, 13(2), 300–313.
Copyright: © 2023 The Author(s)
Published by Human Resource Management Academic Research Society (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode