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This study provides empirical evidence about the effect of intangible assets on firms’ current and future financial and market performance by utilizing a sample the UK FTSE 150 nonfinancial companies. Generally, the findings of this examination reported a strong evidence on the role of intangibles in boosting firms’ performance. In particular, the results indicate that while goodwill (GW) does have a statistically positive effect on firms’ current and future performance, research and development (R&D) is only associated with firms’ future performance. The results of the current research is consistent with the market-based and resources-based theories which posits that intangible investments are the main driving factors of wealth creation in the long-run; Specifically, R&D operations can create new technologies and products that would enhance firms’ performance and value. In addition, the results reveal that both GW and R&D can explain variations in firms’ financial performance measures suggesting that such investments can enhance firms’ earning leading to capitalization such earnings in the market value. Finally, the results of this research provide practical implication for policy makers and managers.

PurposeThis study examines the association between ISA 701 of Key Audit Matters (KAM) with accrual and real earning management practices pre and during the COVID-19 pandemic in Jordanian Industrial listed firms.Design/methodology/approachThe content analysis method was utilized with longitudinal data derived from the annual reports of industrial firms listed on the Amman Stock Exchange with 240 firm-year observations for the period of pre and during COVID-19 (2017–2021).FindingsThe inability of auditors to detect earnings management through KAM is evident in the results, as they reveal a positive association between KAM and real earnings management through abnormal cash flows from operations pre COVID-19 period. Additionally, during the COVID-19 pandemic, earnings manipulation is observed to increase, particularly through abnormal levels of production costs. This result highlight that managers may participate in earning management in areas not covered by the auditor in KAM report to meet their target.Practical implicationsThe findings assist regulatory bodies in their oversight and management of the auditing. In addition, the findings may help standard setters, regulators and the auditing profession as they evaluate the challenges within an unpredictable economic environment.Originality/valueThis is the first comparative study that evaluates the association between KAM and earnings management in the period of pre and during COVID-19. In the context of emerging economies, characterized by distinct corporate governance frameworks, this study enables the establishment of initial assumptions regarding the KAM reporting status of pre and during COVID-19.

Purpose This study aims to examine the non-linear relationship between corporate diversification and real and accrual earnings management, using a sample of 5,659 US firm-year observations for 1,221 firms covering the period from 2001 to 2012. Design/methodology/approach The authors use various techniques and regressions to test the hypotheses. Following prior research, several proxies have been used to measure diversification, accrual earnings management and real earnings management. Findings The study produces several important findings. First, the study provides evidence that diversified firms engage in real and accrual earnings management to manage their reported earnings upward. These results are consistent with recent research (Farooqi et al., 2014; Jirapon et al., 2008) that finds that diversified firms engage in earnings manipulation. Second, and most importantly, the study contributes to the literature by providing the first evidence on a non-linear relationship between corporate diversification and earnings management. Specifically, the study provides evidence that diversified firms engage in accrual (real) earnings management, but this engagement is associated with level of diversification in a non-linear U-shaped (inverted U-shaped) relationship. Research limitations/implications Like all other studies, the current study has some limitations. The study was conducted only on the largest firms in the USA that have market capitalization of more than US$10m; hence, the findings may not be generalizable to small publicly traded firms. Further, the findings may not be generalizable to other markets, given the unique characteristics of US markets such as the presence of very sophisticated investors. Practical implications This study provides some important implications for US regulators to revise their regulations to prevent diversified firms from using earnings management to manipulate reported earnings. Originality/value This study is the first in the USA to examine the non-linear relationship between corporate diversification and earnings management. The study focuses on one of the most active, most attractive and largest capital markets throughout the world, that of the USA. Also, this study is one of the few studies that examine whether diversified firms use real activities manipulation to manage their reported earnings.

The Financial Accounting Standards Board (FASB) released Accounting Standards Codification (ASC) 606, “Revenue from Contracts with Customers”, with the aim of enhancing transparency to provide fairer representation and inhibit the misuse of revenues to manipulate earnings. During COVID-19, variable considerations in ASC 606 were used to manage earnings as a tool to help firms survive. The study aimed to test the mediating role of earnings management in influencing the effect of variable considerations in ASC 606 on the continuity of the firm. An online questionnaire was sent to financial reporting preparers in US public shareholding firms; 403 valid questionnaires were received. The results of PLS-SEM revealed that crises such as COVID-19 have highlighted the way in which variable considerations in ASC 606 were exploited to manage firms’ earnings to ensure their survival. Companies resort to showing their best financial performance, beautifying its financial reports by manipulating profits, using flexibility in accounting policies, but this may negatively affect the country’s entire economy by collapsing companies and creating more financial crises that cannot be easily addressed.

Purpose This paper aims to examine the relationship between abnormal audit fees and accrual-based and real-based earnings management by using a sample of 1,055 UK firm-year observations from 2006 to 2015. Design/methodology/approach Linear regression was used to test the hypothetical relation between abnormal audit fees and accrual and real earnings management. Following prior research, several proxies have been used to measure abnormal audit fees, accrual earnings management and real earnings management. Findings Abnormal audit fees were negatively associated with real earnings management. A higher level of abnormal audit fees was the major driver of enhanced audit quality, in turn reducing managers’ flexibility to use real earnings management and to manipulate reported earnings. Abnormal audit fees were found to be negatively associated with abnormal discretionary expenses, abnormal production costs and the aggregated measure of real earnings management. Practical implications This paper outlines the importance of considering any abnormal audit fees paid to audit firms. It is expected that the abnormal audit fees might compromise auditor independence and lead to a higher level of earnings management. However, the findings of this paper provide a new insight to many interested parties, e.g. regulators, audit firms, investors and creditors, that abnormal audit fees are associated with higher audit quality and higher financial reporting quality in the UK. Regulators in the meanwhile should reform the audit market by, e.g. revising the types of non-audit services that are provided for the same client, setting a cap on the maximum fees that can charged by auditors and monitoring earnings management practices. Audit firms should take into consideration that any charged abnormal level of audit fees may have a direct impact on audit quality. Originality/value This is the first study to examine the impact of abnormal audit fees on accruals and real earnings management after major regulatory changes that took place in the UK. These major changes are the adoption of the International Financial Reporting Standards in 2005 and the new legislation concerning the ethical standards issued by the UK Audit Practice Board in 2004. These two major changes are expected to have a direct impact on both earnings management and audit fees, notably for the largest public listed firms. This study also focuses on one of the very developed and attractive stock markets in the world, the UK FTSE 350 stock index, that incorporates that largest 350 public firms.

Purpose This study aims to examine the effect of equity incentives on earnings management that occurs via the use of loan loss provisions by using a sample of 204 bank-year observations over the period 2006-2011. Design/methodology/approach The authors use the data of 39 European banks to test the main hypothesis. Several valuation models and regressions are used to measure the main proxies for executives’ compensation and the determinant factors of loan loss provisions. Findings The empirical results reveal that earnings management that occurs via discretionary loan loss provisions is associated with equity incentives in the banking industry. In particular, European banks’ executives with high equity incentives are found to manage reported earnings upwards by reducing loan loss provisions. The results therefore show that income-increasing earnings management via discretionary loan loss provisions is widely practised by the executives of European banks and that this is partly motivated by executives’ compensation. Practical implications The findings of this paper present important implications for regulators in the European Union, who should take further steps to reform the regulatory environment to monitor and mitigate the earnings management practices that occur via the manipulation of loan loss provisions. Earnings management practices do not just negatively affect subsequent performance but are also found to lead to firms’ failure. Thus, regulators should take the necessary reforms to protect the wealth of stakeholders (investors, creditors, etc.). Originality/value This study provides the first evidence on the relationship between equity incentives and earnings management in the European banking industry. The study sheds more light on an issue of great interest to a broad audience that does not receive much attention in the prior research, thus opening new avenues for future research.

Purpose This research examines the impact of the COVID-19 pandemic and governance structure on corporate narrative reporting (CNR) concerning Industry 4.0 (I4.0) technologies in Jordanian commercial banks. The study aims to explore how these factors influence the extent and nature of disclosures in annual reports. Design/methodology/approach The study uses a comprehensive manual content analysis method to investigate the annual reports from all 15 Jordanian commercial banks from 2010 to 2022. This approach allows for the detailed examination of I4.0 disclosures, using a specially developed index to measure various disclosure dimensions. An ordinary least squares model is used to assess the determinants of CNR on I4.0, considering factors such as the pandemic’s impact and various governance attributes. Findings The findings indicate that both the COVID-19 pandemic and specific governance factors (e.g. board size and audit committee size) significantly enhance the disclosure of I4.0 technologies. The study reveals that during the pandemic, banks significantly increased their level of detailed disclosures about I4.0 strategies, challenges and benefits, reflecting a strategic response to the pandemic’s disruption. Originality/value This study introduces a novel I4.0 Reporting Index for banks, measuring disclosures across strategy implementation, business model transformation, challenges and benefits. It adds to the existing literature by offering insights into narrative reporting practices concerning I4.0 technologies within the banking sector and illuminates the impact of the COVID-19 pandemic on these practices.

Purpose The purpose of this study is to examine the relation between related party transactions and both accrual and real earnings management practices in Jordanian industrial public-listed companies, taking into account the uniqueness of the Jordanian company ownership structure. Design/methodology/approach Data were collected from Jordanian industrial public-listed companies for the period 2011–2017. Accrual earnings management is measured by using the modified Jones model, whereas real earnings management and related party transactions are measured by using relevant proxies. A regression model is developed and used to assess the relation between related party transactions and earnings management, taking into account the effects of ownership concentration, family ownership and institutional ownership levels of the companies involved. Findings Accrual earnings management is negatively associated with related party transactions. Regarding the role of ownership structure, the presence of institutional investors is positively associated with using both related party transactions and real earnings management, whereas ownership concentration plays an efficient role to mitigate the use of both accrual earnings management and related party transactions. No statistically significant relations between real earnings management and related party transactions exist. Practical implications This study has direct practical implications for the Jordanian regulatory authorities to enact regulations to limit the misuse of related party transactions and earnings management transactions and ensure sufficient monitoring of these transactions because of their prevalence. Jordanian companies should also enhance their corporate governance systems to better approve and monitor such transactions, including enhancing the role of independent and non-controlling board members in this process. Originality/value Related party transactions are considered as a major concern of financial reporting quality in developed countries, and such transactions are found to be relatively more problematic in developing countries, where corporate governance is generally weak, and there is limited disclosure and transparency in financial reporting. From this perspective, this study is one of the very few studies in developing countries that explore the issue of related party transactions and their association with earnings management practices. Thus, the findings of this study can arguably be to some extent generalized to other developing country contexts, because of relatively similar business environment conditions, and therefore potentially fill a gap represented by the paucity of similar studies in developing countries.

This study aims to explore the financial and governance factors that determine related party transactions (RPTs) in the developing country context of Jordan. To do so, a multiple regression model was developed and used. Results show that RPTs are negatively related with CEO-duality and board independence, while they are positively related with firm leverage, ownership concentration, board size, and audit quality. However, no statistically significant relation was found between RPTs and firm profitability or board political connections. Several of these relations (or lack of relations) are contrary to the findings of extant studies from more-developed countries, and can arguably be attributed to the prevalence of the closely-held business model in Jordan, where, regardless of the firm's financial conditions, high ownership concentration and close relations among board and top executive management positions are common, and the demand for an audit service of high quality is limited. Practical implications of these findings include that regulatory authorities in Jordan should enhance regulations and corporate governance codes to protect small shareholders and other stakeholders and restrict the power of dominant shareholders that makes them able to engage in illegitimate RPTs. In doing so, it also has to improve its monitoring of companies more likely to engage in such RPTs.