Political connections, government ownership, and earnings management: evidence from Jordan

Mohammad Alhadab, Modar Abdullatif, Ahmed Hassan Ahmed, Yasean Tahat and Israa Mansour

International Journal of Accounting, Auditing and Performance Evaluation, 2021, vol. 17, issue 1/2, 93-126

Abstract: This study examines the impact of political connections and government ownership on accrual and real earnings management. Based on a Jordanian sample of 310 firm-year observations, the study finds evidence that politically-connected firms exhibit a higher level of real earnings management, compared to non-politically-connected firms. This evidence suggests that politically-connected firms in Jordan opportunistically manipulate reported income to obtain a private gain through the use of real activities-based manipulation, at the expense of other minority shareholders. This may be caused by real earnings management activities being less subject to the risk of detection and monitoring. Further, the study finds evidence that government-connected firms engage in a lower level of accrual and real earnings management compared to non-government-connected firms, suggesting a positive effect for government ownership on the quality of financial reporting.

Keywords: accrual earnings management; real earnings management; political connections; government ownership; financial reporting quality; Jordan. (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijaape:v:17:y:2021:i:1/2:p:93-126

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