A Descriptive Analysis of Corporate Governance Mechanisms and Earnings Management in Palestine

Aljadba, Ali; Nawai, Norhaziah; Laili, Nur Hidayah

doi:10.18196/jai.v24i1.16187

Cited by 1 publication

(4 citation statements)

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“…The study thus contends that there may be complementary impacts across corporate governance and accounting conservatism on the risk of the stock prices falling and collapsing and that high-level corporate governance could improve the governance impact caused by Asian Journal of Accounting Research accounting conservatism on the risk of stock prices falling and malfunction threats (Caskey and Laux, 2017;Honarbakhsh, 2022). The impact of accounting conservatism on the risk of stock prices falling and breakdown, nevertheless, is comparatively small because of strong corporate governance mechanisms (Almutairi and Quttainah, 2019;Aljadba et al, 2021;Mrad, 2022;Salehi and Azimi, 2022;Alkhalidi, 2023). This suggests that there may be a relationship between corporate governance and accounting conservatism, meaning that the interaction across the two may have a different outcome on the risk of crashes in stock prices and falls (Garc ıa Lara et al, 2009;El-habashy, 2019;Qi et al, 2019;Wang et al, 2021;Aziz and Sofa, 2023).…”

Section: Hypotheses Developmentmentioning

confidence: 96%

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

“…The role that corporate governance and accounting conservatism have in limiting the likelihood of a stock market meltdown is examined (Ruch and Taylor, 2015). The relationship between corporate governance and accounting conservatism and the probability of a stock market crisis might theoretically take the form of a replacement or complimentary impact (Aljadba et al, 2021). Accounting conservatism prevents management's self-interest and lessens the rise in agency expenses brought on by insufficient contracts.…”

Section: Hypotheses Developmentmentioning

confidence: 99%

“…Conversely, corporate governance and accounting conservatism communicate as a significant component of accounting information releases (Salehi and Sehat, 2019). The degree of excellence of the corporate governance structure can influence the conservatism of accounting information and have a positive governance effect on the disclosures of accounting information, in addition to enhancing the firm's overall performance and containing irrational fluctuations in stock prices (Aljadba et al ., 2021; Wang et al ., 2021). Accounting conservatism may have a relatively small effect on the risk of stock price declines and collapses for companies with strong corporate governance mechanisms; however, for those companies without such mechanisms, accounting conservatism may act as a backup mechanism to guarantee the veracity of financial report information, thereby reducing the risk of stock price declines and crashes to some degree (Alia et al ., 2020; El Shafei et al ., 2022).…”

Section: Introductionmentioning

confidence: 99%

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Impact of accounting conservatism and corporate governance on stock price breakdown in firms listed on the Palestine Stock Exchange

Talawa,

Badwan

2024

AJAR

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PurposeThis paper uses test panel data for the biggest companies listed on the boards of directors of the Palestine Stock Exchange from 2016 to 2022 and will focus on the relationship between the corporate governance index, accounting conservatism, and the comprehensive index of corporate governance.Design/methodology/approachThe relationship between corporate governance and accounting conservatism is experimentally investigated for its impact on the likelihood of stock price breakdown and decline among companies listed on the Palestine Stock Exchange between 2016 and 2022, using a mixed utilities approach.FindingsThe findings demonstrated the adverse correlation between corporate governance, accounting conservatism, and stock prices. Higher levels of corporate governance can effectively reduce the likelihood of future stock price increases, while conservative accounting policies can effectively prevent stock price collapses in these listed companies. Higher levels of corporate governance can greatly lessen the detrimental effect of accounting conservatism on the likelihood of future stock price breakdowns and declines. Both accounting conservatism and corporate governance have substitution effects in decreasing the danger of stock price collapse.Research limitations/implicationsThe limitations of the current research are that higher levels of corporate governance can significantly reduce the harmful effect of accounting conservatism on the probability of stock price breakdown and decline in the future on the study sample used, and these results cannot be generalized to all company stocks that were excluded in this study. The last research limitation is that the sample size of this study is somewhat small, and therefore the effects of the results cannot be used on all unlisted companies, and they cannot be generalized to all of these companies except only to companies listed on the Palestine Stock Exchange.Practical implicationsOur findings have interesting managerial and policy implications. Listed firms should first strengthen external audit oversight, improve the method of disclosing accounting information, and improve the system architecture to raise the level of accounting conservatism. Moreover, it is imperative to enhance and improve the ownership structure of publicly traded firms, construct a robust mechanism for replacing shareholders, fortify the duties of the board of directors, proficiently fulfil the role of independent directors, and develop and refine the internal and external framework for corporate governance.Originality/valueThis study provides insights about reducing the probability of a stock market breakdown and collapse from two sides: enhancing corporate governance, improving accounting conservatism, enhancing the reliability and integrity of disclosure, and growing the number of sustainable disclosures. These suggestions can also be used as a template for Palestine's capital market's gradual and sustainable expansion.

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