Abstract

The current study aimed to identify the factors that affect the earnings quality of Manufacturing Companies listed at Amman Stock Exchange (ASE). Accordingly, four variables were selected, namely: Financial leverage, Firms performance, investment decisions and accounting conservation, in presence of two control variables, namely: firms size and cash holding. Ordinary least square (OLS) cross sectional regression model was applied on a sample of (58) manufacturing companies listed at Amman Stock Exchange (ASE) during the period 2000-2013 resulting in 812 firm/year observation. The results of the analysis showed the existence of statistically significant direct impact for each of firm performance, financial leverage and accounting conservation on earnings quality. These results are consistent with the view that the greater the company’s earnings are, it becomes the less likely to practice creative accounting or earnings management, what led to increased earnings quality. Also, these results are consistent with the point of view that external creditors are considered as external control tool over management’s performance, what in turns, reduces the agency cost and reduces the likelihood of practicing creative accounting or earnings management, which will reflect positively on the quality of earnings. Finally, accounting conservation plays a role in the reduction of the practice of creative accounting or earnings management.

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