Abstract
The Chief Executive Officer (CEOs) tends to be the most influential member of a corporation as they exert control over corporate decisions such as financial disclosure, board structure, and company performance in ensuring enhanced corporate performance and earnings. The issue of earnings management (EM) that has captured the attention of researchers may be among the most critical factors that are linked to financial statement manipulation. Therefore, the current study explored the effects of the personal characteristics of CEOs on real earnings management (REM) practices in Jordan. Data of 58 companies listed on the Amman Stock Exchange for six years from 2013 to 2018 were utilised to achieve this study’s objectives. The results of this study revealed that CEOs’ experience had a significantly positive association with REM. Meanwhile, CEOs’ tenure had no impact on REM among Jordanian firms. Also, the results exposed the presence of a significantly negative association between CEO duality and REM. Finally, CEOs’ political connection was found to have a significantly positive association with REM. This study offers empirical evidence on the effect of CEO characteristics on REM and how such characteristics can lead to exploitation, which brings an impact on the financial reporting quality.
Highlights
The collapse of reputable companies like Enron in 2001 and Arthur Andersen and WorldCom in 2002 has raised concerns about the financial reporting integrity and the efficiency of internal control mechanisms (Leventis & Dimitropoulos, 2012).Financial statements need to be reliable as they serve as essential sources for decision-making for investors (Liu, 2012; Alsraheen & Saleh, 2017; Altarawneh, Shafie, & Ishak, 2020)
This study examined whether the model used to analyse the effect of Chief Executive Officer (CEO) characteristics on real earnings management (REM) activities had an econometric issue before the experiment was carried out
The objective of the current study is to assess the effect of the characteristics of CEOs on REM in Jordan-listed firms from 2013 to 2018
Summary
The collapse of reputable companies like Enron in 2001 and Arthur Andersen and WorldCom in 2002 has raised concerns about the financial reporting integrity and the efficiency of internal control mechanisms (Leventis & Dimitropoulos, 2012).Financial statements need to be reliable as they serve as essential sources for decision-making for investors (Liu, 2012; Alsraheen & Saleh, 2017; Altarawneh, Shafie, & Ishak, 2020). Financial scandals have eroded investors’ trust in the quality of the information disclosed by listed firms. Company executives might be compelled to change earnings to obtain favourable benefits for themselves (Healy & Wahlen, 1999). In this case, earnings management (EM) is “any practice that company managers use to report accounting results for opportunistic purposes and/or intelligence purposes which do not correlate to the ones they have accomplished” (Osma, Noguer, & Clemente, 2005; Bermejo-Sánchez, Rodríguez-Ariza, & Martínez-Ferrero, 2015). EM often includes the manipulation of accounting data These manipulations compromise the quality of disclosed earnings and reduce investors’ trust in financial reporting (Sáenz González & García-Meca, 2014; Saleem, Alifiah, & Tahir, 2016)
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