Family ownership and real earnings manipulations in emerging economies: evidence from Jordanian firms

Purpose

This study aims to explore how family ownership influences real earnings manipulations (REMs) in Jordan. It also examines whether engaging in REM correlates with diminished future profitability in family-owned companies in Jordan.

Design/methodology/approach

The analysis is based on a sample of 95 Jordanian firms listed on the Amman Stock Exchange from 2010 to 2023. Hypotheses are tested using feasible generalized least squares regression, with additional robustness checks performed using a two-step generalized method of moments approach to address potential endogeneity concerns.

Findings

The results reveal that Jordanian family-owned companies are more prone to engaging in REM by manipulating sales, overproducing inventory and reducing discretionary expenditures. Moreover, family-owned companies involved in REM experience significantly lower future operating performance in the succeeding year compared to companies not involved in such practices.

Practical implications

This study provides valuable insights for policymakers, regulators, investors and academics aiming to curb REMs in family-owned companies and to enhance the financial reporting quality within the Jordanian context.

Originality/value

To the best of the authors’ knowledge, this is the first empirical study in Jordan to examine the relationship between family ownership and REM, thereby filling a critical and persistent gap in the literature on corporate governance and earnings management in emerging economies.