The Impact of Earnings Management on Stock Returns for Listed Industrial Firms on the Amman Stock Exchange

Abstract

This study aims to investigate the impacts of earning management on the stock returns of listed industrial firms on the Amman Stock Exchange, with the observance of (firm size and operating cash flow) as control variables for the study. In order to fulfill the purposes of this study, the researcher utilized (Jones model) and (Modified Jones model) to measure earning management through reliance on discretionary accruals as evidence of earnings management practices, and utilize (Market Return On the Stock model) to measure stock returns, and the study population was Mining and Extraction Industries firms also Food and Beverages firms listed in Amman Stock Exchange, the study was conducted on a sample of 18 firms which represents 75% of the study population for the period from 2014 to 2018, In addition to using descriptive and analytical approach to data collection, analysis, and testing hypotheses through financial statements of the firms in the study, the researcher has used the Statistical Package for Social Sciences (SPSS) program to test the hypotheses.

This study creates many results some of which are: there is an insignificant relationship between earnings management practices and stock returns for listed industrial firms in Amman Stock Exchange during the study period at the significance level of 5%, Which reflects the poor efficiency in Amman Stock Exchange and not the information contained in the financial statements issued and therefore not impact stock prices, which in turn affects the stock returns, and there is an insignificant relationship between stock returns and operating cash flow at the level of significance of 5%, In addition found significant correlation between firm size and stock returns at the significance level of 1%. The researcher presented a set of recommendations; the following are most valuable: the importance of increasing the awareness of the relevant parties about the unreliability of financial statements issued by industrial companies listed on the Amman Stock Exchange in existence of the earnings management practice and not reflecting the information contained in the financial statements on prices and stock returns by holding seminars, conferences and meetings also Activating the role of audit committees further to be able to detect the practice of earnings management and decrease it.