The moderating effect of audit quality on the relationship between information asymmetry and earnings management: evidence from Jordan

Abstract

This study examined how the relationship between information asymmetry and earnings management was affected by audit quality as an example of emerging markets using a sample of Jordanian industrial firms listed on the Amman stock exchange from 2015 to 2019. Fixed effect model is used to examine study hypotheses. The findings indicate that information asymmetry positively affected earnings management. Moreover, the results revealed that audit quality negatively affected the relationship between information asymmetry and earnings management, meaning that audit quality can reduce the level of information asymmetry and mitigate earnings management. This study will contribute to corporate governance and auditing literature among Jordanian firms by providing beneficial information for regulators, investors and other stakeholders about how audit quality can restrict information asymmetry and reduce earnings management. This study will be of value to firms seeking to reduce earnings management and enhance financial reporting quality by decreasing information asymmetry.