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The Nexus of Research and Development Intensity with Earnings Management: Empirical Insights from Jordan

Author

Listed:
  • Abdelrazaq Farah Freihat

    (Department of Accounting, Faculty of Business, Al-Balqa Applied University, Al Salt 19117, Jordan)

  • Ayda Farhan

    (Higher Colleges of Technology (HCT), Al Ain Campuses, Al Ain P.O. Box 17258, United Arab Emirates)

  • Ibrahim Khatatbeh

    (Department of Banking and Finance Sciences, Business School, The Hashemite University, Zarqa 13133, Jordan)

Abstract

Driven by positive accounting, agency, and political and economic theories, this study examines the relationship between research and development (R&D) intensity and earnings management for listed pharmaceutical companies in the Amman Stock Exchange (ASE) between 2008 and 2021. Employing panel regression methods, the results reveal a positive association between R&D investment and earnings manipulation. Specifically, after two or three R&D delays, the association survived. Moreover, firm size negatively affects earnings management, showing that larger firms have less tendencies to conduct earning manipulation. Furthermore, financial leverage and earnings management are strongly connected, showing that firms may utilize earnings management to avoid credit covenants. The findings emphasize distortions in R&D reporting and profit management within Jordan’s financial reporting practices. Enhancing the accuracy of R&D investment disclosures, minimizing profit manipulation, and fostering greater transparency are crucial. Jordan’s regulators should improve capitalization standards, transparency, auditing, and shareholder activism.

Suggested Citation

  • Abdelrazaq Farah Freihat & Ayda Farhan & Ibrahim Khatatbeh, 2025. "The Nexus of Research and Development Intensity with Earnings Management: Empirical Insights from Jordan," JRFM, MDPI, vol. 18(1), pages 1-18, January.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:1:p:22-:d:1562913
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    References listed on IDEAS

    as
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