Mediating Role of Applying Governance on the Relationship between Earnings Management in Jordanian Banks and Financial Stability

Abstract

The purpose of this study is to investigate how the application of governance principles influences the relationship between economic financial stability and earnings management in Jordanian banks. One of the methods for finishing administrative reform procedures is governance, which is the source or reference that a business or unit is governed by. The Hashemite Kingdom of Jordan has twenty banks. The economy will benefit from these institutions' administrative and financial supervision. Accordingly, it is crucial to comprehend the impact that the governance frameworks used in banks have on Jordan's financial stability, as one of the Central Bank of Jordan's responsibilities is to oversee banks that operate there. This will be demonstrated by the Central Bank's role in overseeing the governance frameworks used in Jordanian banks and encouraging investors to pay attention to these frameworks' implementation because of its influence on the transparency of financial reports, which aids in their decision-making. The study's issue arises from the Central Bank of Jordan's responsibility to preserve Jordan's financial stability. Since banks play a major role in defining Jordan's financial stability, researchers' job is to look at how the implementation of governance frameworks in Jordanian banks operating there affects Jordan's financial stability. Additionally, the agency theory, which explains that each party aims to maximize its own benefit, expresses the problem of the relationship between management in operating Jordanian banks and investors holding shares in operating Jordanian banks in terms of achieving the interests of both parties. The study intends to investigate how well banks can use governance principles to reduce the risks associated with earnings management and how this affects the Kingdom's financial stability. This will evaluate how well Jordanian banks implement governance principles and their capacity to improve financial stability for the country's economy. The findings of the study show that the governance principles used in Jordanian banks need to be reformulated. Key words: financial stability, earnings management, governance, and Jordanian banks.