Publication: The Moderating Role of External Auditor on the Relationship Between Corporate Governance and Earnings Management: Evidence from Amman Stock Exchange in Jordan
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Date
2024-02
Authors
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Journal ISSN
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Publisher
Universiti Sains Islam Malaysia
Abstract
Several factors influence earnings management, with corporate governance emerging
as a crucial force capable of curbing fraudulent practices. Corporate governance has the
capacity to decrease or even eliminate fraudulent behaviour. The extent of earnings
management could impact how well corporate governance policies safeguard
shareholder interests. However, the financial markets have suffered from a series of
corporate scandals over the past years, with earnings management highlighted as one of
the most important challenges that weaken the quality of financial reports. Furthermore,
this development led to the establishment of an independent auditor. The objective of
this study is to investigate the impact of corporate governance on earnings management
in Jordan. The study's sample consisted of all industrial companies listed on the Amman
Stock Exchange (ASE), utilizing secondary data from 2010 to 2020. A non-probability
technique was employed, and the data analysis was conducted using STATA. The
results indicate that corporate governance negatively affects earnings management in
companies listed on the Amman Stock Exchange. The study's findings underscore the
negative effect of corporate governance on earnings management within the companies
listed on the Amman Stock Exchange. Moreover, it highlights the role of external audits
as a means to address agency problems and constrain earnings management behaviours.
Consequently, recommendations emerged from the study, advocating for an increase in
board members to diversify experiences and enhance investment decisions. The study
also stresses the necessity of intensive training for external audit staff to elevate their
professional competence, enabling better monitoring and evaluation of company
performance for public interest. Embracing governance guidelines stands out as pivotal
in securing reliable and credible financial reports, aiding users in making informed
financial decisions. Adopting the guiding rules of governance contributes to the
Jordanian public due to their importance in obtaining reliable and credible financial
reports, serving the purposes of the users of those reports in making rational financial
decisions. Additionally, there is an emphasis on the importance of increasing effective
cooperation within the company between the board of directors, the Audit committee,
the Executive Management, and external auditors to provide good and effective
governance. A transparent relationship between them in terms of exchanging
information and ensuring independence is necessary to obtain reliable financial reports.
Description
Matric: 4160298 (FEM)
Keywords
Corporate governance, Jordan, Auditor, Amman Stock Exchange, External auditor, Financial audit, Earnings Management, Professional ethics, Management
Citation
Fawwaz Ali Taha Ababneh. (2024 The Moderating Role of External Auditor on the Relationship Between Corporate Governance and Earnings Management: Evidence from Amman Stock Exchange in Jordan [Doctoral dissertation, Universiti Sains Islam Malaysia]. USIM Research Repository.