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Mediating influence of earnings management in the nexus between audit quality and company value: new proof from Jordanian market

Mediating influence of earnings management in the nexus between audit quality and company value:... This paper aims to recognize the direct influence of audit quality (AQ) on earnings management practices (EMP) and company value (CV), as well as the mediating role of EMP in the link between AQ and CV. It presents new factual proof from the Jordanian market, which is still in its early stages.Design/methodology/approachA pattern of 43 service firms listed on the Amman Stock Exchange (ASE) was collected for the timeframe (2012–2019), giving an amount of 344 firm-year observances. The data was collected from the annual reports extracted from the ASE’s database and tested with panel data analysis.FindingsThe results show that audit firm industry specialization positively affects EMP while its size and tenure do not, which implies that its industry specialization does not restrict earnings management but rather leads to an increase in opportunistic behaviors. Audit firm size and audit firm industry specialization positively affect CV, whilst audit firm tenure does not. Additionally, the findings indicate that EMP negatively affect CV, and EMP act as a mediator for the AQ–CV nexus.Research limitations/implicationsStakeholders can use the findings to enhance the capacity and effectiveness of Jordan’s fiscal market. For example, our results will boost policymakers’ eagerness to institute suitable statutes improving Jordan’s fiscal market performance. Besides, the results can assist existing and potential investors make sound adjudication by using AQ proxies and earnings management as signals to predict future company’s value.Originality/valueThe paper differentiates itself from previous papers through initiating a new proposed model by exploring the role of earnings management as a mediator in the nexus between AQ and CV by presenting new factual proof from the Jordanian market. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting Research Journal Emerald Publishing

Mediating influence of earnings management in the nexus between audit quality and company value: new proof from Jordanian market

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References (82)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1030-9616
eISSN
1030-9616
DOI
10.1108/arj-03-2021-0102
Publisher site
See Article on Publisher Site

Abstract

This paper aims to recognize the direct influence of audit quality (AQ) on earnings management practices (EMP) and company value (CV), as well as the mediating role of EMP in the link between AQ and CV. It presents new factual proof from the Jordanian market, which is still in its early stages.Design/methodology/approachA pattern of 43 service firms listed on the Amman Stock Exchange (ASE) was collected for the timeframe (2012–2019), giving an amount of 344 firm-year observances. The data was collected from the annual reports extracted from the ASE’s database and tested with panel data analysis.FindingsThe results show that audit firm industry specialization positively affects EMP while its size and tenure do not, which implies that its industry specialization does not restrict earnings management but rather leads to an increase in opportunistic behaviors. Audit firm size and audit firm industry specialization positively affect CV, whilst audit firm tenure does not. Additionally, the findings indicate that EMP negatively affect CV, and EMP act as a mediator for the AQ–CV nexus.Research limitations/implicationsStakeholders can use the findings to enhance the capacity and effectiveness of Jordan’s fiscal market. For example, our results will boost policymakers’ eagerness to institute suitable statutes improving Jordan’s fiscal market performance. Besides, the results can assist existing and potential investors make sound adjudication by using AQ proxies and earnings management as signals to predict future company’s value.Originality/valueThe paper differentiates itself from previous papers through initiating a new proposed model by exploring the role of earnings management as a mediator in the nexus between AQ and CV by presenting new factual proof from the Jordanian market.

Journal

Accounting Research JournalEmerald Publishing

Published: May 24, 2023

Keywords: Audit quality; Earnings quality; Earnings manipulation; Company value; Jordanian market; G32; G40; G41; M41

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