The relationship between corporate governance mechanisms, tax planning, tax disclosure and real earnings management: evidence from Jordan

• Main Author: Almashaqbeh, Ahmad Abdalla Obeid
• Format: Thesis
• Language: English; English; English; English
• Published: 2019
• Subjects: HJ Public Finance
• Online Access: https://etd.uum.edu.my/9213/1/s99244_01.pdf; https://etd.uum.edu.my/9213/2/s99244_02.pdf; https://etd.uum.edu.my/9213/3/s99244_references.docx; https://etd.uum.edu.my/9213/5/depositpermission-not%20allow_s99244-Ahmad%20Abdalla%20Obeid%20Almashaqbeh.pdf; https://etd.uum.edu.my/9213/

Financial scandals such as Enron and WorldCom have exposed managers’ opportunistic behaviour to manipulate earnings. According to agency theory, managers’ decisions are motivated by self-interest behaviour. Corporate governance (CG) mechanisms are very useful to control managers’ opportunistic acts. Hence, this study examines the relationship between CG mechanisms and real earnings management (REM) in Jordanian listed firms. Besides the present study examines the relationship between tax planning, tax disclosure, and REM. The current study also examines the moderating effect of audit committee (AC) effectiveness on the relationship between CG mechanisms and REM. The study utilised 101 firms listed on the Amman Stock Exchange for the period from 2011 to 2015. By using generalised least square (GLS) random-effect regression model, the study demonstrates that the presence of foreign directors on board and board age diversity significantly reduce the level of REM. The study shows that a bigger board leads to a high level of REM. Besides, managerial and institutional ownership has a significant and negative association with REM. However, foreign ownership has a significant and positive association with REM. Consistent with the study’s expectation, the results reveal that tax planning has a positive relationship with REM, whereas tax disclosure is negatively associated with REM. The finding further indicates that AC effectiveness only moderates the association between family ownership and concentrated ownership with REM. The additional analyses reveal a positive relationship between family ownership and REM in firms that have a high level of family shareholdings. However, no relationship exists between family ownership and REM in the firms that have low family shareholdings. Besides, the relationship between managerial ownership and REM is negative and significant, whether in firms that have a high or low level of managerial shareholdings. Regulatory bodies, shareholders, and policymakers can benefit from the findings of this study.