Title: The nexus between free cash flow, audit committee characteristics, and earnings management practices

Authors: Dea'a Al-Deen Omar Al-Sraheen; Nofan Hamed Al-Olimat; Mohammad Naser Hamdan

Addresses: Accounting Department, School of Business, Al Al-Bayt University, Jordan ' Accounting Department, School of Business, Al Al-Bayt University, Jordan ' Accounting Department, School of Business, Al Al-Bayt University, Jordan

Abstract: Research models are developed to address firstly the relationship between free cash flow, audit committee independence, audit committee meeting, and the members' expertise and earnings management. Secondly, the model is developed to examine the moderating role of audit committee effectiveness in the relationship between free cash flow and earnings management. Based on a sample of 255 firms belonging to the Amman Stock Exchange from 2016 to 2020, the results highlight the managers' opportunistic behaviour in presence of free cash flows in order to increase reported earnings. It is shown that the independence and expertise have a vital monitoring role of managers' behaviour that reduces earnings management. In addition, the moderating regression indicates also that the audit committee effectiveness affected positively the relationships between free cash flow and earnings management. Thus, the presence of such a committee restricts the managers in practising their opportunistic behaviours in presence of a free cash flow problem.

Keywords: free cash flow; audit committee meeting; audit committee independence; audit committee expertise; earnings management; Jordan.

DOI: 10.1504/AAJFA.2024.137363

Afro-Asian Journal of Finance and Accounting, 2024 Vol.14 No.2, pp.281 - 296

Received: 18 Sep 2021
Received in revised form: 13 Mar 2022
Accepted: 29 Apr 2022
Published online: 14 Mar 2024 *

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