Publication: The Effect Of Fair Value Accounting On Earnings Quality: A Comparative Study Among Banking And Real Estate Sectors In Jordan
Loading...
Date
2024
Journal Title
Journal ISSN
Volume Title
Publisher
Universal Publishers - Boca Raton, Florida, USA
Abstract
Purpose: Understanding the interplay between Fair Value Accounting (FVA) and Earnings Quality (EQ) is not only urgent but also essential for firms striving to navigate today's complex financial environment successfully. FVA serves as a vital tool to accurately value assets and liabilities, ensuring financial stability and enhancing investor confidence by providing stakeholders with transparent and relevant financial information essential for decision-making. Moreover, the quality of earnings, significantly affected by the adoption of fair value practices, directly impacts a company's performance and credibility in the eyes of investors, creditors, and regulators. This study aims to evaluate the impact of FVA on the EQ of the Jordanian banking and real estate sectors and to compare the effects between them.
Design/methodology/approach: employs quantitative research techniques to evaluate the impact and relationships between variables. The data includes 47 companies listed on the Amman Stock Exchange (ASE) for the period from 2012 to 2022, analyzed using a model to assess the effect and relationships between independent and dependent variables, with the leverage ratio serving as a moderating variable. The urgent need to incorporate leverage ratios into FVA and EQ assessments is critical for companies seeking to maintain investor confidence, mitigate risks, and enhance their financial strategies in today's dynamic business
environment. The data is analyzed using both the income approach (FVANI) and the market approach (FVAMA) to fair value accounting. The effects on EQ are analyzed based on four characteristics: persistence (PR), predictability (PRED), volatility (VOL), and closeness to cash (CTC).
Findings: Findings: STATA results showed that FVA positively affected EQ, PR, PRED, and CTC in both the banking and real estate sectors in Jordan. However, the effect of FVA was stronger in the banking sector compared to real estate. The leverage ratios (LEV) moderating effect was found to be positive between FVANI and EQ, as well as VOL among banks. Moreover, LEV moderated the impact of FVANI on EQ and CTC for real estate companies. In the banking sector, LEV's role as a moderator was confirmed in the relationship between FVAMA and both PRED and CTC. Additionally, for real estate companies, LEV's moderating effect was observed between FVAMA and EQ, PR, and VOL. Therefore, the findings should be regarded as viable evidence for account users in Jordan and investors because it offers information on appropriate measurement required to measure the FVA effects on EQ in the Jordanian banking and real estate sectors.
Research limitations/implications: This study focused on the The study population includes 15 banks and 32 real estate companies (totaling 517 observations over 11 years) listed on the ASE. The study sample consists of all banking and real estate corporations, and therefore could be generalized to the other contexts.
Practical implications: This study offers a number of important theoretical, practical and/or managerial implications. It has developed and tested the integrated model that examines how the results of this research provide insights into the impact of FVA on EQ within Jordan.
Originality/value: This study advances the understanding of how FVA impacts AEQ in the unique context of Jordan. It also underscores the roles of the LEV in shaping this relationship. These findings offer practical guidance for companies and suggest avenues for future research to further explore the implications of this study.
Description
Global Business and Management Research: An International Journal, Volume 16 Issue 3 Page (343–363)
Keywords
Banks, Earnings Quality, EQ reports, Fair Value Accounting, IFRS.
Citation
Ahmed M. Mubaideen, Nur H. Laili, Nurul N. Jamil & Khairil F. Khairi The Effect of Fair Value Accounting on Earnings Quality: A Comparative Study among Banking and Real Estate Sectors in Jordan. (2024). Global Business and Management Research: An International Journal, 16(3), 343–363.