The impact of corporate governance mechanisms on real and accrual earnings management practices: evidence from Jordan

Lara Al-Haddad, Mark Whittington

Research output: Contribution to journalArticlepeer-review

53 Citations (Scopus)
14 Downloads (Pure)


Purpose – This paper aims to investigate the impact of corporate governance mechanisms, namely board characteristics and ownership structure, on deterring real (REM) and accrualbased earnings management (AEM) in Jordan after the 2009 Jordanian Corporate Governance Code (JCGC) enactment. The study also aims to investigate the potential substitution between these two manipulation strategies.
Design/methodology/approach – The study used a sample of 108 Jordanian public firm over the 2010-2014 period. To test our research hypotheses which are constructed and explained in accordance with a theoretical framework established from the relevant literature, multivariate analysis is performed using pooled OLS-regression models. Tests of normality, multicollinearity, homoscedasticity, and autocorrelation are conducted to ensure that the OLS assumptions are not violated.
Findings – We find both institutional and managerial ownership constrain the use of real and accrual earnings management. In contrast, both independent directors and largest shareholders are found to exaggerate such practices, and CEO-duality is found to exaggerate real-based earnings manipulations only. However, foreign ownership does not appear to have a significant impact on any of the two manipulation methods. We further find that managers use real and accrual earnings management jointly to obtain the greatest effect of earnings reporting.
Practical implications – Our findings have important policy implications for policymakers, regulators, audit professionals and investors in their attempts to constrain earnings management practices and improve the financial reporting quality in Jordan. Investigations such as this into the impact of monitoring systems like corporate governance allows them to evaluate its role in improving the quality of financial information. It specifically helps them to determine which corporate governance attributes are likely to affect financial reporting quality.
Originality/value – To the best of our knowledge, we are the first in Jordan to examine the relationship between corporate governance mechanisms and both real and accrual-based earnings manipulations following the introduction of the 2009 JCGC, as well as the first in Jordan and the Middle East region overall to examine the relationship between board characteristics and REM. Moreover, we are the first to test for the potential substitution REM and AEM since the 2009 JCGC enactment. As such, our study has raised significant findings that draw attention to earnings management practices and the role of monitoring mechanisms in Jordan.
Keywords- Accrual earnings management, board characteristics, corporate governance, Jordan, ownership structure, real earnings management.
Original languageEnglish
Article numberCG-05-2018-0183
Pages (from-to)1167-1186
Number of pages20
JournalCorporate Governance: The International Journal of Business in Society
Issue number6
Early online date6 Jul 2019
Publication statusPublished - Dec 2019


  • ownership structure
  • Jordan
  • corporate governance
  • board characteristics
  • accrual earnings management
  • real earnings management
  • Corporate governance
  • Ownership structure
  • Real earnings management
  • Board characteristics
  • Accrual earnings management


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