The Effect of Interaction of Operating Cash Flows and Earnings Management on Stock Liquidity (An Applied Study in Listed Industrial Companies on Amman Stock Exchange)

Abstract

This study examines the effect of earnings management and operating cash flows on the stock liquidity of industrial companies listed on the Amman Stock Exchange, and tests a new hypothesis concerning the interaction between these two variables in explaining stock liquidity. The study is motivated by the inconsistent findings in prior literature regarding the determinants of stock liquidity and the differing roles of accounting-based measures across market environments.

Panel data for 30 industrial firms over the period 2017–2023 were analyzed. Stock liquidity was measured using the Relative Bid‑Ask Spread, earnings management was estimated using the Modified Jones Model, and operating cash flows were measured as the ratio of net operating cash flows to total assets. Appropriate panel regression models were applied after conducting the necessary diagnostic tests.

The results indicate that neither earnings management nor operating cash flows have a statistically significant effect on stock liquidity, and the interaction between them also shows no significant impact. These findings suggest that stock liquidity in the Amman market is driven primarily by market‑based and structural factors rather than internal accounting indicators.