BOARD CHARACTERISTICS AND FINANCIAL REPORTING QUALITY: EVIDENCE FROM JORDAN

Download This Article

Abstract

This paper aims outspreading preexisting researches by assessing practically and empirically how board characteristics play a vibrant role in magnitude of earning management (EM) for the Jordanian listed companies. In particular, the paper throws its light on the principle features of the board of directors, i.e. board independence, CEO duality, financial expertise, governance expertise, firm-specific expertise and size. In this paper, a cross-sectional version of the Modified Jones Model is applied to ensure the accurate assessment of the key impacts of board characteristics on EM for a sample of 86 industrial listed companies on the Amman Stock Exchange (ASE) for the years 2008 to 2010. Discretionary accruals are used as proxy for EM. This study, on the basis of findings, reveals the significant correlation between salient board features and EM. Findings of this systematic observation demonstrate that board independence, financial expertise, governance expertise and size have a negative relation with EM. It also found that CEO duality and board firm-specific expertise have an obvious positive relation with discretionary accruals. The findings suggested that the board character has an effective role in detecting EM and in turn improve financial reporting quality (FRQ). In real fields, the discoveries of this paper portray valuable information for the regulators in different countries. The results also provide useful information for investors in assessing the impact of board characteristics on FRQ. In fact, previous studies on this very issue in this context do not meet the demand of comprehensive observation appropriately. To make input in this area, particularly among Jordanian companies, this study will extend the scope through providing empirically tested findings of the role of board directors’ characteristics on EM. In addition, this paper is the first empirical study to investigate the relationship between the board of directors’ characteristics and EM in Jordan.

Keywords: Board of Directors, Corporate Governance, Earning Management, Financial Reporting Quality

How to cite this paper: Alzoubi, E. S. S. (2014). Board characteristics and financial reporting quality: evidence from Jordan. Corporate Ownership & Control, 11(3), 8-29. https://doi.org/10.22495/cocv11i3p1