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Does Audit Quality Moderate the Relationship between Accounting Information and the Share Price? Evidence from Jordan

Author

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  • Yazan Oroud
  • Md. Aminul Islam
  • Tunku Salha Tunku Ahmad
  • Anas Ghazalat

Abstract

Effect of accounting information on the share price has been having the share of attention from researchers for over six decades owing to the increasing of global financial crisis. Hence, this study attempts to contribute to literature by investigating such relationship in Jordan, a developing country. Specifically, this study investigates the relationship between the cash flow and accruals on share price of listed companies on Amman Stock Exchange for the year 2002 to 2014 also the effect of financial crisis on the share price before and after 2008. The model of this study was theoretically founded on both the agency and the signaling theories. To examine the developed model, the required data were gathered from the annual reports of 236 listed Companies. In analyzing the data, this study utilized the panel data methodology on 117 companies with 1521 observations. Moreover, this study used audit quality (audit firm size and audit tenure) as moderating variable. Based on the panel data results, the fixed effect model was used to examine the effect of the cash flows and accruals on the share price. The accruals and cash flows combined have significant effects on the share prices of the Jordanian companies listed on ASE. Audit quality, whether auditor’s firm size or auditor’s tenure, has significant moderating effect on associations of the share prices with accruals and with cash flows and the 2008 financial crisis had negative effects on share prices of the Jordanian companies listed on ASE. This study provides deep insights into relative usefulness of cash-based and accrual-based accounting measures and assist investors, regulators, analysts, and other stakeholders in evaluating the liquidity and financial performance of Jordanian companies listed on ASE, which may result in better allocation of economic resources by enabling the investors to take informed investment decisions, thus promoting a more efficient Jordanian capital market.

Suggested Citation

  • Yazan Oroud & Md. Aminul Islam & Tunku Salha Tunku Ahmad & Anas Ghazalat, 2019. "Does Audit Quality Moderate the Relationship between Accounting Information and the Share Price? Evidence from Jordan," International Business Research, Canadian Center of Science and Education, vol. 12(3), pages 58-65, March.
    • Handle: RePEc:ibn:ibrjnl:v:12:y:2019:i:3:p:58-65
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    References listed on IDEAS

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    5. Andreas Charitou & Colin Clubb & Andreas Andreou, 2001. "The Effect of Earnings Permanence, Growth, and Firm Size on the Usefulness of Cash Flows and Earnings in Explaining Security Returns: Empirical Evidence for the UK," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(5‐6), pages 563-594, June.
    6. Augustine Oke Okolie & Famous O. I. Izedonmi & Augustine O. Enofe, 2014. "Audit Quality and Cash – Based Earnings Management of Quoted Companies in Nigeria," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 3(1), pages 1-4.
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    Cited by:

    1. Khaira Amalia Fachrudin & M. Fikri Ihsan, 2021. "The Effect of Financial Distress Probability, Firm Size and Liquidity on Stock Return of Energy Users Companies in Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 11(3), pages 296-300.
    2. Malik Abu Afifa & Fares Alsufy & Ahmad Abdallah, 2020. "Direct and Mediated Associations among Audit Quality, Earnings Quality, and Share Price: The Case of Jordan," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(3), pages 500-516.

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    More about this item

    Keywords

    cash flow; accruals; audit quality; share price; agency theory; signalling theory; fixed-effect; financial crisis; ASE;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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