Abstract
The study aimed to examine the relationship between executive compensations and earnings management. Also, it investigates whether managerial ownership influences that relation for the non-financial firms listed in Amman Stock Exchange (ASE) during the period 2010–2019. The study provides evidence that firms with a higher level of executive compensations are associated with a low level of earnings management practices. Results also show that the mitigating role of executive compensations is moderated in firms with managerial ownership, and executive compensations level in firms with managerial ownership is unlikely to be effective. In an attempt to maximize the personal interest, managers with sufficient ownership managed earnings in an opportunistic way to exploit the minority interest through taking advantage of the compensations contracts loopholes.
Highlights
The level of earnings quality becomes doubtful when managers have financial and economic incentives to manage earnings aggressively
This study used panel data analysis methods to examine the relationship between the executive compensations and earnings management for the non-financial firms listed in Amman Stock Exchange (ASE) during the period from 2010–2019
It investigates whether managerial ownership influences the relationship between executive compensations and earnings management
Summary
The level of earnings quality becomes doubtful when managers have financial and economic incentives to manage earnings aggressively This ability arises from accounting practices and treatments that provide extensive powers of discretion to managers in reporting earnings, about accrual (Healy & Wahlen, 1999; Rahman, Moniruzzaman, & Sharif, 2013). This judgment might be exploited to generate features to influence the decision-making of financial statement users (Ronen & Yaari, 2008; Beneish, Capkun, & Fridson, 2013). These visions influence the expectations of financial statement users by making the future financial performance of a company excessively optimistic (Krishnan et al, 2011; Li, 2019; Ghazalat, 2020)
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