Factors affecting earnings response coefficient in Jordan: applied study on the Jordanian industrial companies

  • Received February 24, 2020;
    Accepted June 2, 2020;
    Published July 1, 2020
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  • Article Info
    Volume 17 2020, Issue #2, pp. 255-265
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    1 articles

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This work is licensed under a Creative Commons Attribution 4.0 International License

Earnings Response Coefficient (ERC) reflects the market response to the company’s published earnings. It also reflects the quality of the company’s profits. This study aims to examine the factors affecting ERC in Jordan based on a sample of 17 Jordanian industrial companies listed on the Amman Stock Exchange during 2012–2018. The dependent variable of this study is the Earnings Response Coefficient (ERC). Five independent variables or factors were selected for testing their impact on the dependent variable, namely, leverage ratio, systemic risks, company’s size, company’s growth opportunity, and the company’s profitability. The results of panel data regression analysis showed that for companies with a higher leverage ratio, the market is less responsive to the change in their profits than those with a higher leverage ratio. Systematic risk has a negative and significant effect on ERC, which means that high systemic risks lead to a reduction in the ERC. The company’s size has no significant impact on ERC, indicating the irrelevance of the relationship between the size of Jordanian industrial companies and their profits. The company’s growth opportunity has a negative and significant impact on ERC, which means low market-to-book ratio and higher growth opportunities resulting in higher ERC. Finally, the company’s profitability measured by return on assets (ROA) has a positive and important impact on ERC, suggesting that higher profitability increases ERC. The study highlighted the importance of ERC and recommended that companies take the needed measures to increase their ERC. It also recommended raising investors’ awareness.

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    • Table 1. Summary of the study dependent variables
    • Table 2. Descriptive statistics of the study variables
    • Table 3. The results of the regression analysis of the study model
    • Conceptualization
      Hanan Al Awawdeh, Saad A. al-Sakini, Mahmoud Nour
    • Data curation
      Hanan Al Awawdeh
    • Funding acquisition
      Hanan Al Awawdeh, Saad A. al-Sakini
    • Methodology
      Hanan Al Awawdeh, Saad A. al-Sakini
    • Project administration
      Hanan Al Awawdeh, Mahmoud Nour
    • Resources
      Hanan Al Awawdeh
    • Writing – original draft
      Hanan Al Awawdeh
    • Formal Analysis
      Saad A. al-Sakini
    • Supervision
      Mahmoud Nour
    • Writing – review & editing
      Mahmoud Nour