The nexus between free cash flow, audit committee characteristics, and earnings management practices
Dea'a Al-Deen Omar Al-Sraheen; Nofan Hamed Al-Olimat; Mohammad Naser Hamdan
Afro-Asian J. of Finance and Accounting, Vol. 14, No. 2 (2024) pp. 281 - 296
Research models are developed to address firstly the relationship between free cash flow, audit committee independence, audit committee meeting, and the members' expertise and earnings management. Secondly, the model is developed to examine the moderating role of audit committee effectiveness in the relationship between free cash flow and earnings management. Based on a sample of 255 firms belonging to the Amman Stock Exchange from 2016 to 2020, the results highlight the managers' opportunistic behaviour in presence of free cash flows in order to increase reported earnings. It is shown that the independence and expertise have a vital monitoring role of managers' behaviour that reduces earnings management. In addition, the moderating regression indicates also that the audit committee effectiveness affected positively the relationships between free cash flow and earnings management. Thus, the presence of such a committee restricts the managers in practising their opportunistic behaviours in presence of a free cash flow problem.
Tag: Jordan
Evaluating the sources of productivity of insurance firms in Arab gulf countries and Jordan: Malmquist productivity index
Evaluating the sources of productivity of insurance firms in Arab gulf countries and Jordan: Malmquist productivity index
Abderazak Bakhouche; Eman Zabalawi; Mohamed Lotfi Boulkeroua
Afro-Asian J. of Finance and Accounting, Vol. 13, No. 4 (2023) pp. 478 - 501
In recent years, the adoption of technological advances in finance may have impacted the efficiency and productivity of financial institutions, through lower transaction costs and reduced information asymmetries. This paper employs the Malmquist productivity index to measure productivity and identify its main drivers for 98 conventional and Sharia-compliant insurance firms operating in the GCC and Jordan over the period from 2009 to 2017. The results show that insurance firms in the countries under study experienced productivity progress, primarily brought about by technological change. The study substantiates the existence of a scope to enhance productivity by exploring both pure and scale efficiencies, with the continuous integration of advanced technology.
Do earnings quality models affect different excess cash holdings models?
Do earnings quality models affect different excess cash holdings models?
Mohammed M. Yassin; Saja A. Al-Kasasbeh
Afro-Asian J. of Finance and Accounting, Vol. 13, No. 2 (2023) pp. 174 - 191
With the increasing cost of external financing in Jordan, excess cash holdings are a dominant feature of industrial companies listed on the Amman Stock Exchange (ASE). This study provides empirical evidence of an information asymmetry problem by examining the impact of earnings quality on excess cash holdings. The results aim to help investors and creditors to evaluate the transparency of and confidence in financial reporting to enhance decision making and minimise the risk of default. The study employed three different models for earnings quality and two different models for excess cash holdings. Through examination of panel data, the study found that firms with poor earnings quality tend to accumulate excess cash holdings in order to isolate themselves from an information asymmetry problem.
Herding behaviours and trading volume: evidence from Amman Stock Exchange
Herding behaviours and trading volume: evidence from Amman Stock Exchange
Buthiena Kharabsheh; Mohammad Al-Gharaibeh; Suleiman Almasri
Afro-Asian J. of Finance and Accounting, Vol. 12, No. 3 (2022) pp. 345 - 365
The purpose of this paper is to examine the presence of herding behaviour in Amman Stock Exchange (ASE). Specifically, it aims to provide empirical evidence on the relationship between herding behaviour, trading volume and market liquidity levels. Using a free float share index consisting of 100 companies, the present study employs the approach developed by Chang et al. (2000). It presents an analysis of herding in relation to trading volume and liquidity relationships performed by OLS, VAR estimation and Granger causality tests. Results of daily data analysis for the period 2006 to 2017 indicate strong evidence of herding behaviour in ASE, particularly during the crisis period. The results also proved that there is a strong correlation between herding and trading volume in both directions, and intensification of herding in periods of medium or high market liquidity, but no evidence of herding at low liquidity levels.
The moderating effect of audit quality on the relationship between information asymmetry and earnings management: evidence from Jordan
The moderating effect of audit quality on the relationship between information asymmetry and earnings management: evidence from Jordan
Mohammed Hassan Makhlouf; Mohammed Zakaria Soda; Yazan Oroud; Abdulhadi H. Ramadan
Afro-Asian J. of Finance and Accounting, Vol. 12, No. 2 (2022) pp. 165 - 177
This study examined how the relationship between information asymmetry and earnings management was affected by audit quality as an example of emerging markets using a sample of Jordanian industrial firms listed on the Amman stock exchange from 2015 to 2019. Fixed effect model is used to examine study hypotheses. The findings indicate that information asymmetry positively affected earnings management. Moreover, the results revealed that audit quality negatively affected the relationship between information asymmetry and earnings management, meaning that audit quality can reduce the level of information asymmetry and mitigate earnings management. This study will contribute to corporate governance and auditing literature among Jordanian firms by providing beneficial information for regulators, investors and other stakeholders about how audit quality can restrict information asymmetry and reduce earnings management. This study will be of value to firms seeking to reduce earnings management and enhance financial reporting quality by decreasing information asymmetry.
On the robustness of the Fama-French three-factor and the Carhart four-factor models on the Amman Stock Exchange
On the robustness of the Fama-French three-factor and the Carhart four-factor models on the Amman Stock Exchange
Mohammad Q.M. Momani
Afro-Asian J. of Finance and Accounting, Vol. 11, No. 1 (2021) pp. 64 - 80
This study aims to explore the robustness of the applicability of the Fama-French and the Carhart asset pricing models on the Amman Stock Exchange (ASE) equity market. It uses data on all companies listed and traded in the ASE, over the period of 2002 to 2018. The study uses the time-series regression approach of Black et al. (1972). To estimate the models, the study applies the ordinary least squares (OLS) method. The study found that the models fail to capture the cross-section of average returns to portfolios sorted on size/book-to-market as well as size/momentum. The ability of the Carhart model in describing the returns to size/book-to-market portfolios is similar to that of the Fama-French model; however, the model better describes the returns to size/momentum portfolios. Unlike Al-Mwalla's (2012) conclusion, this study suggests using the Carhart model in practical applications that require the estimation of the ASE equity market returns.
The role of the audit committee in moderating the negative effect of non-audit services on earnings management among industrial firms listed on the Amman Stock Exchange
The role of the audit committee in moderating the negative effect of non-audit services on earnings management among industrial firms listed on the Amman Stock Exchange
Dea'a Al-Deen Omar Al-Sraheen
Afro-Asian J. of Finance and Accounting, Vol. 9, No. 3 (2019) pp. 349 - 361
This paper examines the effectiveness of the audit committee in limiting the adverse effects of the provision of non-audit services (NAS) on earnings management. In addition, the current study examines the effect of surplus free cash flow and NAS on earnings management. Earnings management occurs less frequently when the audit committee is effective. In this study, audit committee effectiveness refers to the overall effectiveness of the committee that was measured using a composite measurement of effectiveness. The sample comprised 336 industrial firms listed on the Amman Stock Exchange from 2014 to 2016. The results documented that the positive relationship between surpluses free cash flow and earnings management. This study contributes to the literature by providing evidence that investors realise that NAS harms the independence of the auditor by creating an economic bond between the auditor and client that could negatively affect audit quality and hence earnings credibility. As does all research, this study suffers from limitations, including the fact that this study sheds the light only on the industrial sector in Jordan, Thus, the need exists for more research to be conducted using other sectors in Jordan and other countries as well to determine the effects of other variables on earnings management from other perspectives.