Ownership Structure, Earnings Manipulation, and Organizational Performance: The Case of Jordanian Insurance Organizations

Abstract

This study aims to investigate the direct relationship between ownership structure, earnings manipulation, and organizational performance, and then examine the mediating effect of earnings manipulation in the relationship between ownership structure and organizational performance. This study collected and analyzed secondary data published in financial reports related to all insurance organizations listed in the Jordanian market during the study period (from 2009 until 2018). A panel data analysis was conducted, giving a total of 200 observations. The findings of this study concluded that ownership concentration, foreign ownership, and organization size affect organizational performance proxied by ROA, ROE, and EPS, more specifically, ownership concentration and organization size have a positive effect, whereas foreign ownership has a negative effect. At the same time, board of director ownership, organizational ownership, and CEO compensation did not affect organizational performance. Next, the board of director ownership, ownership concentration, foreign ownership, and CEO compensation affect earnings manipulation separately. In addition, earnings manipulation positively affects organizational performance proxied by ROA, ROE and EPS. This means that the higher the earnings manipulation is, the higher the organizational performance is. Finally, earnings manipulation mediates the relationship between ownership concentration and foreign ownership of ownership structure, and organizational performance.

Does earnings management mediate the relationship between audit quality and company performance? Evidence from Jordan

“…Agency theory was used in the majority of previous studies that looked at the relationship between audit quality and company financial performance and several of these studies have revealed that audit quality improves a company’s financial performance (Sayyar et al , 2015). According to Saidat et al (2019) and Alqirem et al (2020), the fundamental role of the control process in companies is to increase the efficiency and effectiveness of operational performance, to preserve the company’s reputation and to decrease agency conflicts between management and stakeholders. Jusoh et al (2013) and Farouk and Hassan (2014) documented that there is a negative relationship between audit quality and agency costs, because external auditors give an indicator of the legitimacy and integrity of financial reports, which may lead to an improvement in company performance.…”

“…This is performed through the use of accounting standards’ flexibility, or even by noncompliance, by modifying financial statements (Saleh et al , 2020a). Furthermore, there are studies that warn of risk behaviors and the elements that lead to these deviant attitudes on the part of managers and administrators, culminating in accounting fraud, with consequences not only for the companies but also for present and potential investors (Alqirem et al , 2020; Farouk and Hassan, 2014; Li, 2014; Phan et al , 2020).…”

“…Other early literature (Alsufy et al , 2020; Idris et al , 2018) stated that the level of audit quality in Jordanian companies is low, which encourages managers to manipulate earnings. Furthermore, Jordanian companies continue to have a weak level of governance, as well as a lack of diversification and concentration of ownership (Almashaqbeh et al , 2019; Alqirem et al , 2020). According to Abbadi et al (2016), Latif et al (2017), Shbeilat and Abdel-Qader (2018) and Almarayeh et al (2020), insufficient levels of auditing and monitoring (such as corporate governance) in MENA companies may have a detrimental effect on constraining their EM practices.…”

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

“…Therefore, our paper uses these proxies to measure the AQ. Accruals-based EMP using modified Jones model is regularly used in the previous studies (Alqirem et al, 2020;Chang and Sun, 2009). The modified Jones model is used to measure noncompulsory accruals to identify EMP (Dechow et al, 1995;Jones, 1991).…”

“…Francis et al (1999) suggested that high accrual firms are more probable to use a big auditor to have confirmation that income is reliable. Moreover, big firms tend to be more involved in EMP to accomplish a one-sided goal (Alqirem et al , 2020; Saleh et al , 2020a).…”