Ownership structure and earnings management: evidence from Jordan
International Journal of Accounting & Information Management
ISSN: 1834-7649
Article publication date: 3 May 2016
Abstract
Purpose
The purpose of this paper is to examine the association between internal corporate governance mechanism and earnings management of Jordanian companies. More specifically, the author examines several hypotheses regarding the relationships between ownership and earnings management.
Design/methodology/approach
This study measures the magnitude of discretionary accruals as a proxy for earnings management using the cross-sectional modified Jones model. A number of econometric techniques are used including ordinary least squares and generalized least squares to test the relationship between company ownership and earnings management, using a sample of 62 companies listed on the Amman Stock Exchange.
Findings
The results revealed that insider managerial ownership, institutional ownership, external blockholder, family ownership and foreign ownership have superior influence on financial reporting quality, as it is, to a greater extent, potentially able to curtail earnings management. The findings contended that the aspects of ownership structure have a significant influence on earnings management, which is in agreement with the theories of corporate governance and opinions that have been highlighted through a number of international bodies.
Research limitations/implications
Due to lack of data, the paper depends on cross-sectional data applied to isolate abnormal accruals.
Practical implications
The evidence may be conceivably beneficial as a supporting fundamental for regulatory action, particularly those that affect the ownership structure. The findings have significant implications for regulators as well as supervisors, who will benefit by the comprehension of how ownership structure affects earnings management and enhance financial reporting quality.
Originality/value
The current research produced its essential contribution through empirically displaying that ownership structure has different implications on earnings management. Moreover, the results recommended that both policymakers and researchers would no longer contemplate ownership structure as a whole, given that ownership structure has different implications on earnings management, measured by the discretionary accruals.
Keywords
Acknowledgements
The author gratefully acknowledges the helpful comments and suggestions received from the two anonymous reviewers. Editor-in-Chief Maggie Liu provided excellent editorial support. All the remaining errors are the sole responsibility of the author.
Citation
Saleem Salem Alzoubi, E. (2016), "Ownership structure and earnings management: evidence from Jordan", International Journal of Accounting & Information Management, Vol. 24 No. 2, pp. 135-161. https://doi.org/10.1108/IJAIM-06-2015-0031
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited