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With the increasing cost of external financing in Jordan, excess cash holdings are a dominant feature of industrial companies listed on the Amman Stock Exchange (ASE). This study provides empirical evidence of an information asymmetry problem by examining the impact of earnings quality on excess cash holdings. The results aim to help investors and creditors to evaluate the transparency of and confidence in financial reporting to enhance decision making and minimise the risk of default. The study employed three different models for earnings quality and two different models for excess cash holdings. Through examination of panel data, the study found that firms with poor earnings quality tend to accumulate excess cash holdings in order to isolate themselves from an information asymmetry problem.
Afro-Asian Journal of Finance and Accounting – Inderscience Publishers
Published: Jan 1, 2023
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