The effect of Audit Firm Size on Earnings Management: Using the CEO compensation as Moderator

Abstract

This study investigates the impact of the audit firm size on earnings management by using the CEO compensation as a moderating variable. This study was conducted in service and industrial firms listed on the Amman Stock Exchange from 2015 to 2019. A fixed-effect model was applied to examine the results of this study, and the Hausman test was conducted to confirm that the validity of the result. The study finds significant association between the audit firm size and the earnings management. However, document  a significantly negative effect of the combined influence of CEO compensation and audit firm size on earnings management. This study would give benefit to government, investors and shareholders when making a decision regarding external auditing and earnings management, Where the study sheds light on some of the strengths and weaknesses points in the audit firm size and the CEO compensation that help in limiting the earnings management.