The Impact of Sustainable Financial Data Governance, Political Connections, and Creative Accounting Practices on Organizational Outcomes
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sustainability Article The Impact of Sustainable Financial Data Governance, Political Connections, and Creative Accounting Practices on Organizational Outcomes Tha’er Amjed Mahmoud Ababneh * and Mehmet Aga Department of Accounting and Finance, Cyprus International University, Via Mersin 10, Lefkosa 0090, Northern Cyprus, Turkey; [email protected] * Correspondence: [email protected] Received: 28 August 2019; Accepted: 8 October 2019; Published: 14 October 2019 Abstract: Decision-making and financial information quality are key facets of corporate sustainability. The literature is devoid of inquiries investigating the collective impact of sustainable financial data governance and political connections on creative accounting practices, the quality of financial reporting and decision-making effectiveness. The present study integrates these critical factors by obtaining survey data (n = 180) from publicly listed firms in Amman Stock Exchange, Jordan. By applying partial least squares structural equation modeling (PLS-SEM), this study found that (i) sustainable financial data governance does not influence creative accounting practices, (ii) political connections influences the level of firms creative accounting practices, (iii) creative accounting practices influences the quality of financial and accounting information reporting, and (iv) the quality of financial and accounting information reporting influences firms decision-making effectiveness. Implications, limitations, and future research courses are discussed. Keywords: political connections; creative accounting; sustainable; financial data governance; decision-making 1. Introduction Sustainable action and decision are required for progressive development of firms in the long-run. For this to be achieved, some level of corporate governance is required, e.g., corporate-wide governance or specific context such as IT or data governance. IT governance denote the distribution of decision-making rights and the responsibilities of stakeholders about IT usage within a firm [1]. Firms are heavily investing in big data analytics (i.e., technologies for data storage, analysis, and visualization) to gain a competitive advantage. Proponents of data governance have argued that it can result in competitive performance and success [2], firm sensing, seizing, and transforming capabilities [3]. Scholars have commented on the potential benefits and drawbacks of big data, big data analytics, and its governance in finance and accounting field [4,5]. Sustainable data governance in the context of finance and accounting is defined as the ability of firms to engage in information acquisition, retention, analysis, and insight extraction. The ability of firms to obtain, store, analyze, and report data based on need can empower and equip them with greater flexibility toward creative accounting practices. However, investigations on sustainable financial data governance and organizational outcomes are scarce in the literature. The Amman Stock Exchange (ASE) is established in 1999 to govern, manage, and develop the operations and activities of securities, commodities, and derivatives markets inside and outside Jordan. As a non-profit independent institution, ASE was authorized to function as a regulated market for trading securities in Jordan. For instance, to ensure free interaction of supply and demand forces and fair-trading practices [6]. The market capitalization of the listed firms in ASE constitute Sustainability 2019, 11, 5676; doi:10.3390/su11205676 www.mdpi.com/journal/sustainability Sustainability 2019, 11, 5676 2 of 16 of more than 70% of the GDP. However, in 2017, ASE became a public owned institution under the name “The Amman Stock Exchange Company (ASE Company)”. According to Al-Tal [7], “the efficiency of ASE company appears to have been hindered by its regulatory structure and institutional constraints. One, the ASE institutional structure strengthens the government control over the ASE financial autonomy. Two, families and government official have dominant control, making it hard to dictate what corporate governance rules are required, which then prevent some listed companies from complying. For example, in 2008 ASE suffered sustained losses where the trade volume dropped to almost 88%. ASE chairman Dr. Jawad Al-Anani stressed that the financial market is on the verge of bankruptcy and called for radical reforms. He also added corruption, politization, and manipulations among public shareholding companies were the root of the problem and called for the government and legislator to adopt a level of seriousness [8]. One scenario is the Jordanian Phosphate Company that was privatized due to series of corruption allegations ranging from lack of financial disclosure and manipulations. Moreover, at the time of privatization, the top management teams comprise of individuals mostly from politically connected tribes and families. In 2005, the company had an account amounting to 9 million Jordanian Dinars (JD). The “price of the share at the sale was 2.35 JD, after the privatization, the company’s cumulative profits doubled from 273,500 million JD in the period (1953, the year of incorporation of the company to 2005), to 575,900 million JD in 2006. The value of the stock increased to 8.45 dinars in 2010” [9]. Another scenario is a company that was dismissed from ASE and subsequently dissolved. As such not included in this study’s sample. The Board of Directors of Spinning and Weaving Company was dissolved, and the firm was unlisted from ASE after financial corruption and embezzlement of about 100 million JD was uncovered. Consequently, the firm became under the control of Industry and Trade Ministry. Several arrests were made including the general manager, the sales manager, procurement manager and other senior officials. Back in 1996, one investor filed a lawsuit against the company’s management accusing it of violating the conditions stipulated in Agreement signed between the parties. A committee from the ministry of Industry and Trade was charged with auditing the company’s books and entries to ensure the financial and administrative status of the company. The records show evidence of creative accounting meant to hide corruption practices, all in all this activities and practices helped the company to hide losses in revenue. The minister was quoted as saying the company, which was making annual profits of more than two million JD, began to suffer huge losses accrued to 10 million JD [10]. Three, a lack of coordination, data sharing and functional overlaps between officials of the various regulatory bodies makes it hard to monitor financial disclosures and activities of firms. Jordan Securities Commission (JSC) is responsible for compliance with filing and disclosure enforcement but does not extensively review the quality of financial statements due to functional overlap. In 2004, as a part of the joint World Bank-IMF program, the Report of Observance of Standards and Codes (ROSC) assessed Jordan’s corporate governance policy framework and accounting compliance practices. The ROSC Report [11] recommends several policies, such as developing a Code of Corporate Governance, enforcement of public financial disclosure, and periodic review of financial reports and contents, greater compliance with the OECD principles, and a continual review of regulatory bodies that oversee corporate governance. The report also showed that less than 40% of listed firms make a high-quality disclosure [11]. In sum, these issues highlight the presence or partial presence of selective governance, politicized regulations, and the potentiality of creative accounting and lack of financial disclosure. This study set forth to unveil and uncover the true situation on ground. In the context of this study, we defined political connections as the strength of social and political networks of key corporate or organizational members (i.e., CEO, CFO, Directors etc.). The strength of this network allows firms to gain favors, contracts, timely information, scarce resources, etc. Empirical evidence showed that political connections is costly for firms as it diminishes the accuracy of financial predictions, lowers the quality accounting information [12], misleads firms into risky Sustainability 2019, 11, 5676 3 of 16 projects [13], and lowers return on assets due to overinvestments [14]. Politically connected firms are more likely to complete a cross-border transaction than their unconnected counterparts, but at the cost of poorer performance [15]. Advocates have argued that politically connected firms are more likely to be innovative due to government subsidies [16], have abundant disposable resources, and are likely to be top performers [17]. The conflict in the literature suggests that more research is needed to examine the relevance of political connections for creative accounting, quality of accounting reports, and decision-making effectiveness. Large corporations in developed and developing countries are hit by accounting scandals (e.g., WorldCom and Enron). These scandals do not only affect the focal firms, but also the national and global economy. Griffiths [18] lamented that the legitimate and biggest con trick since the Trojan horse, is creative accounting. Creative accounting practices can be viewed as a form of “fictitious revenue”, “aggressive capitalization and extended amortization policies”, “misreported assets and liabilities”, “getting creative with the income statement”, and “problems with cash flow reporting” [19]. The motive is to misguide the public