Proposing a model for limiting earning management practices: The case of Jordanian listed firms

Abstract

The key objective of this paper is to propose a model for limiting earning management practices among manufacturing firms in Jordan. In order to do so, two independent variables are examined in this paper, namely, political influence and CEO Duality. Discretionary total accruals according to the modified Jones model (1991) was used in order to estimate the level of earnings management, which is the dependent variable. The sample comprised 64 companies for the financial year 2013. The results suggest that a positive and significant association existed among both political influence and CEO duality and earning management. This means that both independent variables exacerbated earnings management. Further research is required to determine what urgent legislation should be developed to restrict the presence of members who have political connections on the board of directors. Also, the need exists for the separation of roles of Chairman and CEO to ensure the independence and complying with the requirements of corporate governance.

CEO Characteristics and Real Earnings Management in Jordan

“…This result is consistent with the expectation of hypothesis 4. This finding is in line with the assumption of stewardship theory that political directors can positively influence EM, which is in line with the previous literature, for instance, Chi et al (2016) and Al-Sraheen and Alkhatib (2016).…”

Does the presence of independent directors reduce the practices of earnings management? The moderating role of family ownership concentration

“…It has been argued previously (see, for example, Chen & Jaggi, 2000) that because of the scattering of institutional capital, the powers of owners have conferred upon corporate managers. Corporate managers have less-speciÞ c targets than Þ rms due to variety of ownership structures among shareholders in Þ rms, so corporate managers can exert political inß uence to maintain their powers more systematically (Al- Sraheen & Alkhatib, 2017). Thus, the argument suggests that activities of corporate managers must be properly tracked to avoid the abuse of power and opportunistic behavior, such as the maximization of their own wealth (Khalil & Ozkan, 2016).…”

“…The accounting accruals approach is used in the current study as proxy of earnings management, this measurement called the Jones' (1991) model, which was revised later by Dechow and Sloan (1996). Some previous research such as Dechow, Sloan and Sweeney (1995) have analysed alternative measurements of accrual-based approaches for discovering earnings management and documented that the most powerful measurement is the modiÞ ed Jones model developed in 1991(Al-Sraheen & Alkhatib, 2017. The non-discretionary accruals (ND) is calculated using equation 1(1) Here, TA refers to Total Accruals; LTA = Lagged Total Assets; REV = Change in Revenues from the preceding year; AR= Change in Accounts Receivable from the preceding year; PPE represents Þ rm's gross property, plant and equipment.…”

Does the Monitoring Mechanisms Considered as Dilemma against the Practices of Earnings Management

“…As suggested, corporate managers seek to earnings management practices for attaining some capital market and contractual objectives. These include evading debt covenants violation, raising their compensation share, fulfilling or going beyond the expectations of analysists and also, smoothing the reported earnings (Abed, Al-Badainah & Serdaneh, 2012;Al-Sraheen, 2016) It is common for the practices of earnings management to lead to grave corporate fraud. For instance, the subprime mortgage crisis that happened in 2007 caused grave crisis to the world economy while est ablished firms including Lehman Brothers and Merry Lynch were pushed into bankruptcy owing to the managers' practice of earnings management.…”

“…In the context of Jordan, since 2009, its regulatory authorities have also imposed many principles to reinforce corporate governance mechanisms. This, according to Al-Sraheen (2016) and Mohammad, Wasiuzzaman and Nik (2016), is as precautionary steps for dealing with risks of corporate bankruptcy.…”