Corporate Governance Mechanisms and Earnings Management: Evidence from Jordan

Abstract

This paper aimed to examine the influence of corporate governance procedures on earnings management of manufacturing firms listed on the Amman Stock Exchange (ASE) during the period 2015–2024. Based on agency theory and stakeholder theory, we analyze the influence of governance characteristics (i.e., board independence, audit committee independence, existence of a nomination and remuneration committee, and auditor independence) on earnings manipulation in Jordanian firms. A quantitative methodology was used in the study, based on secondary panel data from annual reports, corporate governance disclosures, and auditor statements. Descriptive, correlation, and panel regression analyses were used to test four hypotheses. The results indicate that all types of corporate governance mechanisms are significantly negatively related to earnings management, suggesting that stronger governance structures could help mitigate managerial opportunism and enhance financial reporting quality. Of these parameters, auditor independence had the most significant effect on earnings manipulation. The results provide a strong case for agency theory, based on empirical findings that good internal and external controls can help avoid conflicts of interest and contribute to a company's transparency. This paper contributes to the corporate governance literature by providing longitudinal evidence in an emerging market environment. It highlights the vital importance of regulators, boards of companies, and external auditors in Jordan to enhance the enforcement of governance principles in practice, promote independence of boards, and maintain the quality and integrity of external audit procedures. This information would be necessary in supporting investors’ confidence, financial transparency, and corporate accountability in the Jordanian business milieu.