Earnings Management and Its Impact on Accounting Earnings Quality - Experimental Study on the Jordanian Industrial Public Shareholding Companies

Abstract

This study aimed to examine the extent to which Jordanian companies practice earnings management and to find out the impact of earnings management on earnings quality. The study relied on a stratified random sample of 20 industrial Jordanian companies listed in Amman Stock Exchange during the period (2005 - 2012). The study used earnings quality as a dependent variable, while the independent variables included earnings management, in addition to three control variables that were: company's size, leverage ratio and return on assets. The results showed low earnings quality of the Jordanian industrial companies in general and proved that Jordanian industrial companies practice earnings management with the aim of reducing earnings. The results of regression analysis showed that earnings management had a negative and significant effect on earnings quality, while the leverage ratio had a positive and significant effect on earnings quality. The study recommended to formulate the accounting principles, policies and standards so as to prevent the companies from manipulating earnings and emphasized the importance of applying corporate governance at all public shareholding companies in Jordan.