Forward looking information disclosures, earnings management practices, and "the CEO's" personal characteristcs: the case of Jordan

Abstract

The primary objective of this study is to examine the relationship between the level of Forward-Looking Information Disclosure (FLID) and Earnings Management (EM) practices among non-financial Jordanian companies listed on the Amman Stock Exchange (ASE) during the period 2008-2013. Content analysis was used to explore the items of FLID, and the level of FLID was measured using the disclosure index. Three models, Jones (1991), Modified Jones (1995) and performance-matched Kothari et al. (2005) models, were employed to estimate discretionary accruals as a proxy for EM. The panel regression results show a negative and significant relationship between the level of FLID and EM. The findings of the study are consistent with agency and signalling theory perspectives.
Secondly, the study seeks to investigate the effect of the CEO’s personal characteristics (age, gender and overconfidence) on the level of FLID. Three measures of overconfidence were used: Net Buyer, Capital Expenditure, and Leverage ratio. The results indicate that the CEO’s age has a negative and significant relationship with FLID. Conversely, the outcomes of the regression analysis show that the CEO’s gender and male characteristics such as overconfidence’ have a positive and a significant association with the level of FLID.
Finally, the study investigates the effect of CEOs’ personal characteristics on EM practices. The empirical tests indicate that overconfidence has a positive and significant association with EM practices, which is consistent with signalling theory. However, there is no evidence to suggest that age and gender affect EM practices. Overall, the findings of the study confirm that a higher level of FLID improves the quality of financial reports. Furthermore, the results show that CEOs’ characteristics affect managers’ decisions. Thus, this study contributes to knowledge by shedding light on the relationship between the level of FLID and EM practices. It also provides new evidence on the impact of the CEO’s characteristics on the level of FLID as a proxy for voluntary disclosures and EM practices, in the context of a developing country.