Board independence, earnings management and the moderating effect of family ownership in Jordan

Abstract

This research examines the moderating effect of family ownership over the relationship between board independence and earnings management. Using information of industrial companies indexed on Amman Stock Exchange, this research provides evidence of negative relationship between board independence and earnings management, proposing that higher percentage of board independence is related with more effective monitoring to reduce earnings management. Moreover, the results document that the relationship between board independence and earnings management becomes weak when there is an interaction with family ownership control. These outcomes indicate that an increase in the percentage of independent directors to mitigate earnings management is less likely to be influential in the case of family controlled firms. The results of this research could be valuable to regulators in their efforts to restrict the incidence of earnings management and improve the quality of monitoring mechanisms, especially in an environment where the capital market is still evolving and the legal protection and law enforcement are weak.