XBRL and the Transparency Challenge: Evidence from Earnings Management in Jordan’s Industrial Sector

Abstract

Drawing on Agency Theory, Institutional Theory, and the Diffusion of Innovation (DOI) framework, this study examines the relationship between mandatory adoption of the eXtensible Business Reporting Language (XBRL) and earnings management in an emerging market. Jordan introduced compulsory XBRL reporting for listed firms in 2020, providing a natural setting to evaluate its governance implications. The analysis is based on firm-level data for 40 industrial companies listed on the Amman Stock Exchange over 2016–2023 (320 firm-year observations). Accrual-based earnings management is measured by absolute discretionary accruals from the cross-sectional Modified Jones Model,. Firm fixed-effects regressions with firm-clustered standard errors, an event-study specification with year fixed effects, and an extensive robustness battery (performance-adjusted accruals, pooled estimation, balance-sheet accruals, exclusion of the pandemic years, and a placebo adoption date) consistently show no statistically detectable change in accrual-based earnings management after adoption. By contrast, absolute abnormal production costs increase significantly after the mandate, an effect that strengthens when the COVID-19 years are excluded and disappears under a placebo date, a pattern consistent with partial substitution from accrual-based towards real-activities manipulation. The findings suggest that digital reporting mandates alone do not discipline reporting behavior in environments with limited institutional enforcement and may redirect rather than reduce managerial opportunism. Implications for regulators, auditors, and standard setters are discussed.