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

Abdelrazaq Farah Freihat (), Ayda Farhan and Ibrahim Khatatbeh
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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

JRFM, 2025, vol. 18, issue 1, 1-18

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.

Keywords: research and development intensity; earnings management; pharmaceutical company; Jordan (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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