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How Audit Fees Impact Earnings Management in Service Companies on the Amman Stock Exchange through Audit Committee Characteristics

Author

Listed:
  • Ayman Shehadeh

    (Accounting and Tax Service Company, Amman 11937, Jordan)

  • Mahmoud Daoud Daoud Nassar

    (College of Business, Al Ain University, Abu Dhabi 112612, United Arab Emirates)

  • Husam Shrouf

    (Department of Business Administration, Faculty of Business, Applied Science Private University, Amman 112612, Jordan)

  • Mohammad Haroun Sharairi

    (College of Business, Al Ain University, Abu Dhabi 112612, United Arab Emirates)

Abstract

The primary objective of this research was to investigate the potential moderating role of audit fees in the relationship between audit committee characteristics and earnings management. Specifically, this study aimed to establish connections between audit committee features, such as committee size, member independence, and financial expertise, and the practice of earnings management. To address these research questions, a convenient sample of 46 service providers listed on the Amman Stock Exchange between 2016 and the subsequent year was employed. Descriptive statistical methods were applied to characterize the variables under investigation, while a multiple regression model was utilized to assess the study’s hypotheses. The findings of the study revealed that there was no significant correlation between the size of the audit committee and earnings management. However, a negative correlation was observed between the audit committee’s independence and the financial expertise of its members. Importantly, when audit fees were introduced as a moderating variable, the relationships between committee member independence and earnings management, as well as between committee member financial expertise and earnings management, were found to be weakened. These results have potential implications for policymakers and regulators in Jordan. They may offer valuable insights into corporate governance reforms that could assist Jordanian businesses in enhancing their earnings management practices.

Suggested Citation

  • Ayman Shehadeh & Mahmoud Daoud Daoud Nassar & Husam Shrouf & Mohammad Haroun Sharairi, 2024. "How Audit Fees Impact Earnings Management in Service Companies on the Amman Stock Exchange through Audit Committee Characteristics," IJFS, MDPI, vol. 12(2), pages 1-16, March.
    • Handle: RePEc:gam:jijfss:v:12:y:2024:i:2:p:32-:d:1364329
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    References listed on IDEAS

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    1. Doddy Setiawan & Lian Kee Phua & Hong Kok Chee & Irwan Trinugroho, 2020. "The effect of audit committee characteristics on earnings management: the case of Indonesia," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 10(4), pages 447-463.
    2. Cohen, Daniel A. & Zarowin, Paul, 2010. "Accrual-based and real earnings management activities around seasoned equity offerings," Journal of Accounting and Economics, Elsevier, vol. 50(1), pages 2-19, May.
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