The Impact of Intellectual Capital on Earnings Management in the Industrial Companies Listed on Amman Stock Exchange

Abstract

This study aimed to find out the impact of intellectual capital on the management of profits of industrial companies in the Jordanian business environment, according to this basic objective, data were collected from 56 manufacturing companies listed on the Amman Stock Exchange (ASE) during the period from 2013 to 2019. The number of total views used in the analysis reached (359) views, during the entire study period. The study relied on the intellectual value-added coefficient to measure the impact of the independent variable, the intellectual capital with its three components (human capital, structural capital, and capital employed). Also, profit management was measured by the absolute value of estimated benefits by using the modified Jones model. In addition, the two control variables were measured: (the size of the company as measured by the natural logarithm of total assets, and the ratio of indebtedness through total debt to total assets). The study used the method of multiple regression analysis in the statistical program (E-views) to test the study hypotheses, and the results showed that earnings management was significantly influenced by intellectual capital. Specifically, it turned out that earnings management was negatively affected by the components of intellectual capital (human, structural and capital employed). Based on the results, the researchers recommend that companies pay more attention to employees by increasing bonuses and salaries, which improves the efficiency of their performance and increases profitability, as well as providing a rational investment environment of high quality, which in turn achieves high profits on the long term. Therefore, undesirable practices such as profit management and others disappear, and finally, working to educate users of financial statements about the risks of high indebtedness which may prompt management to take some management practices that may negatively reflect on their investment decisions.