Impact of earnings components on future profitability of banking and insurance companies in Jordan

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This study aimed to examine the impact of a firm’s total accruals and operating cash flows on future profitability (one-year-ahead ROA) using a static model on unbalanced panel data for all the (15) banks and (18) insurance companies listed on the Amman Stock Exchange from 2002 to 2019. The final sample of the study, for analysis, consisted of 280 observations taken from the banking sector and 410 observations from the insurance sector. The pooled sample of banks’ observations showed no significant impact of a firm’s total accruals and operating cash flows on one-year-ahead ROA. This result is consistent with previous studies’ results, which are still under debate, especially in developed countries. The investors of the Jordanian banks are not counting on the accrual earnings components, which are affected by the different estimation procedures of GAAP and managerial discretion. The pooled sample of the insurance companies’ observations showed a significant impact of a firm’s total accruals and operating cash flows on one-year-ahead ROA. The result showed a higher variable value of a firm’s operating cash flow than the firm’s total accruals for the pooled sample of insurance companies. This result indicates a more incrementally negative relation between the growth in operating assets and a one-year-ahead ROA in addition to the probable impact of the lower rate of economic profits and the conservative bias in accounting.

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    • Table 1. Selected sample
    • Table 2. Descriptive analysis (2002–2019)
    • Table 3. Multicollinearity test results
    • Table 4. Hausman test
    • Table 5. Regression analysis results
    • Conceptualization
      Firas N. Dahmash, Huthaifa Al-Hazaima, Hashem Alshurafat, Abdallah Bader Alzoubi
    • Data curation
      Firas N. Dahmash, Hashem Alshurafat
    • Formal Analysis
      Firas N. Dahmash, Abdallah Bader Alzoubi
    • Funding acquisition
      Firas N. Dahmash, Huthaifa Al-Hazaima, Hashem Alshurafat, Abdallah Bader Alzoubi
    • Investigation
      Firas N. Dahmash, Huthaifa Al-Hazaima, Abdallah Bader Alzoubi
    • Methodology
      Firas N. Dahmash, Hashem Alshurafat
    • Project administration
      Firas N. Dahmash
    • Resources
      Firas N. Dahmash, Huthaifa Al-Hazaima, Hashem Alshurafat, Abdallah Bader Alzoubi
    • Software
      Firas N. Dahmash, Huthaifa Al-Hazaima, Hashem Alshurafat, Abdallah Bader Alzoubi
    • Supervision
      Firas N. Dahmash, Huthaifa Al-Hazaima, Abdallah Bader Alzoubi
    • Validation
      Firas N. Dahmash, Huthaifa Al-Hazaima, Abdallah Bader Alzoubi
    • Visualization
      Firas N. Dahmash, Huthaifa Al-Hazaima, Hashem Alshurafat, Abdallah Bader Alzoubi
    • Writing – original draft
      Firas N. Dahmash, Huthaifa Al-Hazaima, Hashem Alshurafat, Abdallah Bader Alzoubi
    • Writing – review & editing
      Firas N. Dahmash, Huthaifa Al-Hazaima, Hashem Alshurafat, Abdallah Bader Alzoubi