Board Characteristics and the Informativeness of Accounting Earnings: Empirical Evidence from Palestine Exchange (PEX) and Amman Stock Exchange (ASE) رسالة دكتوراة

Abstract

This research examines the relationship between board characteristics and the informativeness of accounting earnings in explaining stock returns for the Palestine Exchange (PEX) and Amman Stock Exchange (ASE) listed companies. It aims to assess how variables such as board reputation, independence, competence, compensation, and board size influence earnings informativeness in the two emerging markets. The research utilizes panel data of nonfinancial listed companies from 2013 to 2023, obtaining 327 and 1081 observations for PEX and ASE, respectively. Diagnostic tests were performed to ensure the reliability and robustness of the models. Fixed-effects regression models were employed. EPS and ΔEPS significantly explain stock returns in both markets, supporting earnings response coefficient theory. However, board characteristics had subtle effects. Despite positively affecting returns, board reputation negatively reduced the link between earnings and stock returns in both exchanges, possibly due to a focus on reputational stability above informativeness. Board independence increased earnings informativeness in ASE but decreased it in PEX, probably due to symbolic governance. Board competency lowered earnings informativeness in ASE, suggesting a focus on broader performance indicators and conservative accounting, but has an insignificant effect on PEX earnings informativeness since well-governed, highly competent boards may already price earnings. Board compensation increased earnings informativeness in both exchanges, possibly through pay-for-performance alignment and governance. Finally, larger boards increased earnings informativeness in PEX due to better monitoring and signaling but decreased it in ASE due to coordination issues and non-financial information. These findings demonstrate the complicated and context-dependent link between board qualities and informativeness regarding emerging market earnings. For control variables, leverage does not affect returns. Firm size had little impact on returns in the two markets, except for the ΔEPS model for ASE, which showed a positive correlation. Corporate age increases PEX returns but not ASE. The two ownership concentration factors, TOP1 and TOP5, showed contradictory results in explaining stock returns between the two exchanges. This research adds empirical evidence from two understudied emerging markets to corporate governance literature. Governance arrangements are crucial to the informativeness of accounting earnings. It helps governments, investors, and corporate executives improve financial transparency and governance in developing economies.