The Impact of Earnings Management on the Value Relevance of Earnings: Empirical Evidence From Jordan

The purpose of this study is to examine the impact of earnings management practices on the value relevance of earnings. To achieve this goal, a sample of 89 manufacturing firms listed on Amman Stock Exchange (ASE) over the period (2006–2018) is used to test the study’s predictions. The study’ findings confirm most prior value relevant studies, by providing evidence indicating that both earnings (EPS) and book value (BV) are value relevant. Although the regression coefficient on both EPS and BV, are considered positive and are statistically substantial at the conventional level, the regression coefficient on EPS is substantially higher than that of BV. This result implies that EPS is more value relevant than BV. Consistent with the study’s predictions, discretionary accruals (DAC), which used as a measure of earnings management, is negatively related to share price suggesting that earnings management activities reduce the value relevancy of accounting information. Further, the interaction of earnings with DAC variable is negatively related to share price indicating that earning management decrease the reliability and consequently the value relevant of earnings. Findings on the direct and the indirect impact, the moderating effect (interaction of DAC with EPS), of DAC on the value relevant of EPS provides sufficient empirical evidence suggesting that DAC decreases the value relevance of the earnings.