Depressing earnings management in Palestinian corporations: The role of audit quality, audit committee, and accounting conservatism

Muiz Abu Alia, Islam Abdeljawad, Mohammad Yaaqbeh

Research output: Contribution to journalArticle

Abstract

The influence of audit quality, the existence of an audit committee, and accounting conservatism in depressing earnings management (EM) were examined in this study while controlling for board characteristics, financial leverage, and client's company size. A regression model on a sample of 184 firm-year observations of 34 companies listed on Palestine Exchange (PEX) between 2011 and 2016 was employed. Based on the results, the independent variables demonstrated negative association to discretionary accruals, measured by four modified versions of Jones model, as a proxy for EM; in other words, the variables were effective in depressing EM and consequently, in enhancing the financial statement quality. A similar negative association was also demonstrated by board size and chief executive officer (CEO) duality. Meanwhile, financial leverage and EM showed a robust positive association suggesting that Palestinian corporations employed EM mainly to influence creditors' decisions. Policy makers should consider the results presented in this study to improve regulations related to reporting and governance.

Original languageEnglish
Pages (from-to)213-236
Number of pages24
JournalInternational Journal of Revenue Management
Volume11
Issue number3
Early online date24 Aug 2020
DOIs
Publication statusPublished - 2020

Keywords

  • Accounting conservatism
  • Audit committee
  • Audit quality
  • Earnings management
  • Palestine

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