Accrual-based Earnings Management, Real Earnings Management and Firm Performance: Evidence from Public Shareholders Listed Firms on Jordanian's Stock Market

Mohammad Mustafa Dakhlallh, Norfadzilah Rashid, Wan Amalina Wan Abdullah, Hamza Kamel Qawqzeh and Abdalrahman Mustafa Dakhlallh

Managers manipulate the firm's earnings through earnings management to demonstrate higher performance in the current and future periods. The current study's aimed to examine the influence of accrual-based earnings management (AEM) and actual earnings management (REM) on Jordanian firms' performance. This study examined accrual-based earnings management through discretionary accrual, real earnings management through abnormal operating cash flow and firm performance through Tobin's Q. This study uses the panel data technique to assess the connection between variables. The sample includes 180 companies listed on the Amman Stock Exchange (ASE) from 2009 to 2017. Through the utilize the fixed-effect method in order to investigate the association between selected components with the Jordanian firms' performance, the results of this study indicated that the association between discretionary accrual and abnormal cash flow from operations with Tobin’s Q is significantly negatively. The present study shows that firms involved in discretionary accrual and cash flow from operations to report greater earnings in the future have less performance. Hence, it shows that the manipulation of earnings causes issues in the future. Whereas, this study offers empirical evidence to assist stakeholders, managers, and stakeholders in their decision.

Volume 12 | Issue 1

Pages: 16-27

DOI: 10.5373/JARDCS/V12I1/20201004