The effect of earnings management on profitability and risk : an applied study on non-financial firms listed on Amman stock exchange

Dissertant

Shubita, Muhamad Fawzi

Thesis advisor

al-Fayyumi, Nidal Ahmad

Comitee Members

Hamdun, Talal

University

Arab Academy for Financial and Banking Sciences

Faculty

The Faculty of Banking and Financial Sciences

Department

Accounting Department

University Country

Jordan

Degree

Ph.D.

Degree Date

2007

English Abstract

Earnings management (EM) occurs when managers use their discretionary power in the financial reporting process and in structuring transactions.

By managing earnings over time, managers convey private information to stakeholders about the underlying economic performance of the company or attempt to influence contractual outcomes that depend on the reported accounting income assuming market efficiency.

This study aims at achieving the following objectives : examining the explanatory power of the earnings management of future profitability and risks, introducing evidence about the information content of earnings management from the Jordanian market, and enriching the literature on earnings management relationships in the capital market research.

The study sample consists of (81) industrial and service companies listed in Amman Stock Exchange (Amman Bourse), during the period (1995-2004).

Regression analysis is employed to examine the study's hypotheses (nine models).

(Adjusted-R2) was used to indicate the incremental information content for the study variables.

The study found the following :- 1.

The current profitability predicts future profitability.

2.

Earnings management has incremental information relative to current profitability when predicting future profitability.

3.

Past profitability provides incremental information related to current profitability when predicting the future profitability.

4.

Earnings management has incremental information content with respect to current and past profitability when predicting future profitability.

5.

Stock prices cannot predict future profitability.

6.

Current profitability has incremental information relative to stock prices when predicting future profitability.

7.

Earnings management has incremental information content to current profitability and stock prices when predicting future profitability.

8.

Earnings management is not associated with the level of systematic risks.

9.

Earnings management is not associated with the level of insolvency risks.

These results mean that the lagged earnings is a good predictor to the future earnings, and Jordanian companies' managers use earning management tools to manipulate profitability trend in the future to achieve a target level in earnings that deserves theirs benefits.

Main Subjects

Financial and Accounting Sciences

Topics

• Management
• Financing
• Profits
• Jordan

No. of Pages

127

Table of Contents

• APA
• MLA
• AMA

Language

English

Data Type

Arab Theses

Record ID

BIM-304879