The Influence of Enterprise Resource Planning System Implementation on Accrual-Based Earnings Management: Empirical Evidence from Jordan

Abstract

This research provides evidence on whether enterprise resource planning (ERP) implementation affects accrual-based earnings management (AEM) in the service and manufacturing firms listed on the Amman Stock Exchange (ASE). The Huber–White’s sandwich estimator for pooled ordinary least squares (OLS) regression was utilized for this investigation as the primary statistical technique. Using three different AEM models and a sample of 390 firm-year observations for the period spanning from 2015 to 2019, this study reveals a significant and negative nexus between ERP implementation and AEM. The findings show that ERP adopting firms are less likely to engage in AEM practices than ERP non-adopting firms. In terms of contribution, the present research is considered among the first to investigate the impact of ERP system adoption on earnings management (EM) in Jordan.

Keywords

Earnings management accrual-based earnings management discretionary accruals enterprise resource planning Jordan

Get full access to this article

View all access options for this article.

References

Al-Amarneh

(2015). Corporate cash holdings and financial crisis: Evidence from Jordan. International Business Research , 8(5), 212–222.

Alhadab

M. M.

(2018). Real and accrual earnings management around initial public offerings in Jordan. International Business Research , 11(1), 204–216.

AlMuhayfith

, & Shaiti

(2020). The impact of enterprise resource planning on business performance: With the discussion on its relationship with open innovation. Journal of Open Innovation: Technology, Market, and Complexity , 6(3), 87.

Al-Sraheen

D. A. A. D. O.

(2019). The role of the audit committee in moderating the negative effect of non-audit services on earnings management among industrial firms listed on the Amman Stock Exchange. Afro-Asian Journal of Finance and Accounting , 9(3), 349–361.

Al-Sraheen

D. A. D.

, & Alkhatib

(2016). Proposing a model for limiting earning management practices: The case of Jordanian listed firms. Corporate Board: Role, Duties and Composition , 12(3), 81–84.

Alzoubi

E. S. S.

(2016). Disclosure quality and earnings management: Evidence from Jordan. Accounting Research Journal , 17(2), 429–456.

Alzoubi

E. S. S.

(2018). Audit quality, debt financing, and earnings management: Evidence from Jordan. Journal of International Accounting, Auditing and Taxation , 30, 69–84.

Alzoubi

E. S. S.

(2019). Audit committee, internal audit function and earnings management: Evidence from Jordan. Meditari Accountancy Research , 27(1), 72–90.

Assenso-Okofo

, Ali

M. J.

, & Kamran

(2021). The impact of corporate governance on the relationship between earnings management and CEO compensation. Journal of Applied Accounting Research , 22(3), 436–464.

10.

Ayoush

, Rabayah

, & Jibreel

(2020). The impact of mergers on the financial performance of Jordanian public shareholding companies. The Journal of Asian Finance, Economics, and Business , 7(10), 751–759.

11.

Baltagi

(2008). Econometric analysis of panel data . John Wiley.

12.

Brazel

J. F.

, & Dang

(2008). The effect of ERP system implementations on the management of earnings and earnings release dates. Journal of Information Systems , 22(2), 1–21.

13.

Costa

C. J.

, Ferreira

, Bento

, & Aparicio

(2016). Enterprise resource planning adoption and satisfaction determinants. Computers in Human Behavior , 63, 659–671.

14.

Dechow

P. M.

, & Skinner

D. J.

(2000). Earnings management: Reconciling the views of accounting academics, practitioners, and regulators. Accounting Horizons , 14(2), 235–250.

15.

Dechow

P. M.

, Sloan

R. G.

, & Sweeney

A. P.

(1995). Detecting earnings management. Accounting Review , 70(2), 193–225.

16.

Dong

, & Wang

(2017). A dynamic view of management’s choices to meet earnings expectations. Journal of Theoretical Accounting Research , 13(1), 104–116.

17.

Fang

V. W.

, Huang

A. H.

, & Karpoff

J. M.

(2016). Short selling and earnings management: A controlled experiment. The Journal of Finance , 71(3), 1251–1294.

18.

Field

(2013). Discovering statistics using IBM SPSS statistics . SAGE Publications.

19.

Ghaleb

B. A. A.

, Qaderi

S. A.

, Almashaqbeh

, & Qasem

(2021). Corporate social responsibility, board gender diversity and real earnings management: The case of Jordan. Cogent Business & Management , 8(1), 1–19.

20.

Gujarati

, & Porter

(2009). Basic econometrics (5th ed.). McGraw-Hill.

21.

Guragai

, Hunt

N. C.

, Neri

M. P.

, & Taylor

E. Z.

(2017). Accounting information systems and ethics research: Review, synthesis, and the future. Journal of Information Systems , 31(2), 65–81.

22.

Guttman

, & Marinovic

(2018). Debt contracts in the presence of performance manipulation. Review of Accounting Studies , 23(3), 1005–1041.

23.

Healy

P. M.

, & Wahlen

J. M.

(1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons , 13(4), 365–383.

24.

Hill

R. C.

, Griffiths

W. E.

, & Lim

G. C.

(2018). Principles of econometrics . John Wiley.

25.

Huang

S. Y.

, Chiu

A. A.

, Chao

P. C.

, & Arniati

(2019). Critical success factors in implementing enterprise resource planning systems for sustainable corporations. Sustainability , 11(23), 875–888.

26.

Hunton

J. E.

, Lippincott

, & Reck

J. L.

(2003). Enterprise resource planning systems: Comparing firm performance of adopters and non-adopters. International Journal of Accounting Information Systems , 4(3), 165–184.

27.

Jiang

, Habib

, & Wang

(2018). Real earnings management, institutional environment, and future operating performance: An international study. The International Journal of Accounting , 53(1), 33–53.

28.

Johansson

, & Newman

(2010). Competitive advantage in the ERP system’s value-chain and its influence on future development. Enterprise Information Systems , 4(1), 79–93.

29.

Jones

J. J.

(1991). Earnings management during import relief investigations. Journal of Accounting Research , 29(2), 193–228.

30.

Kassem

(2018). Exploring external auditors’ perceptions of the motivations behind management fraud in Egypt–A mixed methods approach. Managerial Auditing Journal , 33(1), 16–34.

31.

Klaus

, Rosemann

, & Gable

G. G.

(2000). What is ERP? Information Systems Frontiers , 2(2), 141–162.

32.

Klein

(2002). Audit committee, board of director characteristics, and earnings management. Journal of Accounting and Economics , 33(3), 375–400.

33.

Kliestik

, Belas

, Valaskova

, Nica

, & Durana

(2021). Earnings management in V4 countries: The evidence of earnings smoothing and inflating. Economic Research-Ekonomska Istraživanja , 34(1), 1452–1470.

34.

Kothari

S. P.

, Leone

A. J.

, & Wasley

C. E.

(2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics , 39(1), 163–197.

35.

Kumar

, & van Hillegersberg

(2000). Enterprise resource planning: Introduction. Communications of the ACM , 43(4), 22–26.

36.

Larson

C. R.

, Sloan

R. G.

, & Zha Giedt

(2018). Defining, measuring and modeling accruals: A guide for researchers . https://ssrn.com/abstract=2952601 or http://dx.doi.org/10.2139/ssrn.2952601

37.

Lee

B. B.

, & Vetter

(2015). Critical evaluation of accrual models in earnings management studies. Journal of Accounting and Finance , 15(1), 62–71.

38.

Lento

, & Yeung

W. H.

(2017). Earnings benchmarks, earnings management and future stock performance of Chinese listed companies reporting under ASBE-IFRS. Asian Review of Accounting , 25(4), 502–525.

39.

, & Pohlman

(2008). Return forecasts and optimal portfolio construction: A quantile regression approach. The European Journal of Finance , 14(5), 409–425.

40.

Malikov

, Coakley

, & Manson

(2019). The effect of the interest coverage covenants on classification shifting of revenues. The European Journal of Finance , 25(16), 1572–1590.

41.

Martins

J. L.

, & Santos

(2021). The influence of ERP systems on organizational aspects of accounting: Case studies in Portuguese companies. Accounting Research Journal , 34(6), 666–682.

42.

Mindak

M. P.

, Sen

P. K.

, & Stephan

(2016). Beating threshold targets with earnings management. Review of Accounting and Finance , 15(2), 198–221.

43.

Morris

J. J.

(2011). Measuring the impact of enterprise resource planning (ERP) systems on shareholder value. Review of Business Information Systems (RBIS) , 15(1), 31–39.

44.

Morris

J. J.

, & Laksmana

(2010). Measuring the impact of enterprise resource planning (ERP) systems on earnings management. Journal of Emerging Technologies in Accounting , 7(1), 47–71.

45.

Nekhili

, Amar

I. F. B.

, Chtioui

, & Lakhal

(2016). Free cash flow and earnings management: The moderating role of governance and ownership. The Journal of Applied Business Research , 32(1), 255–268.

46.

Noor

N. F. M.

, Sanusia

Z. M.

, Heang

L. T.

, Iskandar

T. M.

, & Isa

Y. M.

(2015). Fraud motives and opportunities factors on earnings manipulations. Procedia Economics and Finance , 28, 126–135.

47.

Pallant

(2013). SPSS survival manual: A step by step guide to data analysis using SPSS (5th ed.). Allen & Unwin.

48.

Patnaik

D. B.

, Satpathy

, & Debnath

N. C.

(2019). The effect of ERP system implementation on real earnings management: Evidence from an emerging economy. International Journal of Civil Engineering and Technology , 10(3), 588–603.

49.

Peasnell

K. V.

, Pope

P. F.

, & Young

(2000). Detecting earnings management using cross-sectional abnormal accruals models. Accounting and Business Research , 30(4), 313–326.

50.

Pervin

M. T.

, Sarkar

J. B.

, & Bala

S. K.

(2019). Effect of ERP implementations on faithful representation and verifiability of accounting information leading to earnings management: Bangladesh perspective. DUET Journal , 5(1), 67–75.

51.

PricewaterhouseCoopers. (2012). Disclosure management: Streamlining the last mile . www.pwc.com/gx/en/xbrl/pdf/pwc-streamlining-last-mile-report.pdf

52.

Salur

M. N.

, & Kattar

W. K.

(2021). The impact of enterprise resource planning (ERP) on the audit in the context of emerging technologies. Ekonomi Maliye İşletme Dergisi , 4(2), 115–123.

53.

Schipper

(1989). Earnings management. Accounting Horizons , 3(4), 91–102.

54.

Shafakheibari

, & Oladi

(2015). The effect of ERP system on relevance of accounting data and quality of financial reporting quality. Management and Administrative Sciences Review , 4(3), 504–514.

55.

Shatnawi

S. A.

, Eldaia

, Marei

, & Aaraj

S. A.

(2021). The relationship between audit committee characteristics on accounting-based performance (ROA and ROE) as a measure of performance evidence from Jordan. International Journal of Business and Digital Economy , 2(2), 15–27.

56.

Siam

Y. A.

, Idris

, & Al-Okdeh

(2018). The moderating role of family control on the relationship between audit committee financial expertise and earnings management. International Journal of Business and Management , 13(12), 31–37.

57.

Stockemer

(2018). Quantitative methods for the social sciences: A practical introduction with examples in SPSS and Stata . Springer.

58.

Tian

, Yang

, & Yu

T. R.

(2018). Real earnings management in family firms: Evidence from Chinese listed firms. International Journal of Revenue Management , 10(2), 77–106.

59.

Toumeh

A. A.

, Yahya

, & Amran

(2020). The impact of surplus free cash flow and stock market segmentations on earnings management in Jordan: Agency-and institutional-theory perspectives. Management & Accounting Review , 19(1), 169–212. https://doi.org/10.1177/0972150920934069

60.

Toumeh

A. A.

, Yahya

, Yassin

M. M.

, & Ayoush

M. D.

(2021). The moderating effect of audit quality on the links between stock market segmentations, surplus free cash flow, and income-increasing discretionary accruals. Australasian Accounting, Business and Finance Journal , 15(4), 153–174.

61.

Tsai

W. H.

, Lee

K. C.

, Liu

J. Y.

, Lin

S. J.

, & Chou

Y. W.

(2012). The influence of enterprise resource planning (ERP) systems’ performance on earnings management. Enterprise Information Systems , 6(4), 491–517.

62.

Wallingford

, Warren

, & Dubois

(2020). Are Minnesota business colleges and universities preparing students for ethical decision-making in the workplace? Journal of Leadership, Accountability and Ethics , 17(4), 79–84.

63.

Wei

C. C.

, Chien

C. F.

, & Wang

M. J. J.

(2005). An AHP-based approach to ERP system selection. International Journal of Production Economics , 96(1), 47–62.

64.

Wooldridge

J. M.

(2010). Econometric analysis of cross section and panel data . MIT Press.

65.

Yan-Xin

(2018). Executive compensation and real earnings management: Perspective of managerial power. International Journal of Advances in Management and Economics , 6(2), 19–37.

66.

Zeng

, & Hanyue

(2021). Research on the development status and countermeasures of enterprise earnings management from the perspective of big data . In E3S Web of Conferences (Vol. 236). EDP Sciences. https://www.e3s-conferences.org/articles/e3sconf/abs/2021/12/e3sconf_icersd2020_03030/e3sconf_icersd2020_03030.html