Board Characteristics, Audit Committees, and Earnings Manipulation: Examining the Moderating Influence of CEO Power in Jordan's Capital Market
Board Characteristics, Audit Committees, and Earnings Manipulation: Examining the Moderating Influence of CEO Power in Jordan's Capital Market

Summary/Abstract: This paper looked into the effect of the characteristics of members of the board of directors and of audit committees on the level of earnings manipulation practices among the ASE-listed non-financial Jordanian firms. The moderating effect of CEO power in these firms was also investigated. The obtained study data were from 66 ASE-listed firms from the 2017-2020 period. The effect of meeting frequency, board independence, and the financial expertise level of members was examined. Independence of audit committee members, the financial expertise level of audit committee members, and membership of audit committee members in other committees were the characteristics of audit committee members examined. The modified Jones Model (1995) was the primary model used in measuring the level of earnings manipulation. The manually gathered data from the companies' annual reports underwent a series of statistical tests. Results indicated an inverse relationship between board independence, increased financial expertise, and board meeting frequency. A correlation was also found between audit committee independence and a decrease in earnings manipulation practices. Contrariwise, there was no statistical proof for the other direct study variables. The findings are valuable to both policymakers and legislators in developing countries, specifically in Jordan, as they improve the understanding of the tools that can reduce earnings manipulation practices in firms. Furthermore, it provides them with a clear picture of the level of the Jordanian corporate governance code structures, especially after the recent modifications in 2017. Moreover, in terms of previous literature, this study fills the knowledge gap and offers insights for future research.

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