Disclosure of Organizational Ambidexterity Activities and Earnings Quality in Oman

Mawih Kareem AL Ani; Hidaya Mustafa Al-Lawati; Musallam Mohammed AL Amri

doi:10.26668/businessreview/2023.v8i5.1393

Authors

Mawih Kareem AL Ani https://orcid.org/0000-0002-3288-175X
Hidaya Mustafa Al-Lawati https://orcid.org/0000-0001-8192-2100
Musallam Mohammed AL Amri

DOI:

https://doi.org/10.26668/businessreview/2023.v8i5.1393

Keywords:

Organizational Ambidexterity Dis¬closure, Organizational Ambidexterity, Earnings Quality, Persistence, Value Relevance, Oman

Abstract

Purpose: This study examines the association between organizational ambidexterity disclosure (OAD) and earnings quality (EQ) in terms of earnings persistence (PER) and value relevance (VR).

Theoretical framework: Organizational ambidexterity disclosure (OAD) is one type of forward-looking disclosure (FLD) which includes all information about exploration and exploitation activities. In accounting, the study is interested in how (OAD) affects the firm’s earnings quality.

Design/methodology/approach: This study uses the secondary data of non-financial industrial and services firms listed on the Muscat Securities Market (MSX) in Oman for a 5-year period from 2017–2021. The study uses generalized least square (GLS) and feasible general least squares (FGLS) regressions to test the hypotheses and find the results.

Findings: Results of the GLS and the robust results of FGLS show that OAD has a positive and significant effect on earnings persistence (PER) and value relevance (VR) and the coefficient of VR is stronger than the coefficient of PER, indicating the importance of OAD on the earnings quality as new evidence in the area of accounting.

Research Implications: The results provide crucial implications for researchers, investors, policy makers and managers. The study provides potential leverage points for those responsible for shaping the disclosure and transparency because of it insights on when OAD impacts EQ.

Originality/value: This study offers a novel resource-based perspective to explain how Omani firms achieve higher sustainable and value relevance earnings by investing in OA. It also provides new evidence about how an ambidextrous firm improves the sustainable and value relevance earnings.

Downloads

Download data is not yet available.

References

Abazeed, R.A.M. (2020). Impact of strategic capabilities on organizational ambidexterity in the commercial banks in Jordan: The mediating role of knowledge management. Management Science Letters, 10(7), 1445–1456

Abu-Musa, A. A. E-S., El-Mehy, A. A. E-F. A. & E-Deeb, M. A. (2021). The Value relevance of forward looking disclosure: A Content analysis of the annual reports of Egyptian listed companies. Contemporary Commercial Studies Journal, 7(11) part (3), 255-293

Al Dulaimi, J. A. A. B. & Kadhim, E. H. (2022) Transparency of Information in the Financial Statements and the Extent to Which It Discloses the Future Expectations of Economic Units Using the Tobin s Q Index. International Journal of Professional Business Review, 7(5), 01-15. doi.org/10.26668/businessreview/2022.v7i5.766

Al Lawati, H. (2022). Politically connected firms and forward-looking disclosure in the era of Oman Vision 2040. Journal of Risk and Financial Management, 15, 233. https://doi.org/10.3390/ jrfm15060233

Al Lawati, H. M. A., & Hussainey, K. (2020). Disclosure of forward-looking information: Does audit committee overlapping matter? International Journal of Accounting, Auditing and Performance Evaluation, forthcoming.

Al Lawati, H., Hussainey, K. & Sagitova, R. (2021). Disclosure quality vis-à-vis disclosure quantity: Does audit committee matter in Omani financial institutions? Review of Quantitative Finance and Accounting 57, 557–94.

Alamayreh, E. M., Sweis, R. J., & Obeidat, B. Y. (2019). The relationship among innovation, organizational ambidexterity and organizational performance. International Journal of Business Innovation and Research, 19(4),554-579.

Al-Najjar, B., & Abed, S. (2014). The association between disclosure of forward-looking information and corporate governance mechanisms: Evidence from the UK before the financial crisis period. Managerial Auditing Journal, 29(7), 578-595. DOI:10.1108/MAJ-01-2014-0986

Al-Shattarat, B. (2021). The consequence of earnings management through discretionary accruals on the value relevance in Saudi Arabia. Cogent Business & Management, 8, (1)1886473, DOI: 10.1080/23311975.2021.1886473

An, Y. (2017). Measuring earnings quality over time. International Journal of Economics and Financial Issues, 7(3), 82-87.

An, Y. (2019). An empirical study on the relationship between foreign investors and earnings quality. Research in World Economy, 10(3), 99-107. https://doi.org/10.5430/rwe.v10n3p99

Athanasakou, V. E., & Hussainey, K. (2014). The perceived credibility of forward-looking performance disclosures. Accounting and Business Research, 44(3), 227-259. DOI: 10.1080/00014788.2013.867403

Aureli, S., Gigli, S. Medei, R. & Supino, E. (2020). The value relevance of environmental, social, and governance disclosure: Evidence from Dow Jones Sustainability World Index listed companies. Corporate Social Responsibility and Environmental Management, 27(1), 43-52. https://doi.org/10.1002/csr.1772.

Bell, L., & Hofmeyr, K. (2021). Enabling organisational ambidexterity: A leadership perspective. South African Journal of Business Management, 52(1), 1-15. a2268. https://doi.org/10.4102/ sajbm.v52i1.2268

Beretta, S. & Bozzolan, S. (2008). Quality versus quantity: the case of forward-looking disclosure. Journal of Accounting, Auditing and Finance, 23(3), 333-376. https://doi.org/10.1177/0148558X0802300304

Black, R., & Nakao, S.H. (2017). Heterogeneity in earnings quality between different classes of companies after IFRS adoption: evidence from Brazil. Accounting & Finance Review (Revista Contabilidade & Finanças), 28(73), 113-131. DOI: 10.1590/1808-057x201702750

Bravo, F. (2016). Forward-looking disclosure and corporate reputation as mechanisms to reduce stock return volatility. Revista de Contabilidad (Spanish Accounting Review), 19, (1), 122-131

Brix, J. (2019). Ambidexterity and organizational learning: revisiting and reconnecting the literatures. The Learning Organization, 26(4), 337-351. https://doi.org/10.1108/TLO-02-2019-0034.

Buertey, S., & Pae, H. (2021). Corporate governance and forward-looking information disclosure: evidence from a developing country. Journal of African Business, 22(3),293-308

Cao, Q., Gedajlovic, E., & Zhang, H. (2009). Unpacking organizational ambidexterity: dimensions, contingencies, and synergistic effects. Organization Science, 20(4), 781-796 DOI:10.1287/orsc.1090.0426

Charumathi, B., & Ramesh, L. (2015). On the determinants of forward looking disclosures by Indian companies. Indian Journal of Accounting, XLVII (1), 25-37.

Cho, H., Lee, P., & Shin, C.H. (2019). Becoming a sustainable organization: focusing on process, administrative innovation and human resource practices. Sustainability, 11(13), 3554. https://doi.org/10.3390/su11133554.

Christofi, M., Vrontis, D. J. & Cadogan, W. (2021). Microfoundational ambidexterity and multinational enterprises: A systematic review and a conceptual framework. International Business Review, 30(1),101625

Claudia, O. & Mihaela, H. (2019). Ambidexterity- A new paradigm for organization facing complexity. Studies in Business and Economics, 14(3), 145-159.

Clauss, Th., Kraus, S. Kallinger, F. L., Bican, P. M., Brem A., & Kailer, N. (2021) Organizational ambidexterity and competitive advantage: The role of strategic agility in the exploration-exploitation paradox. Journal of Innovation & Knowledge, 6, 203–213. doi.org/10.1016/j.jik.2020.07.003

Dechow, P., Ge, W., & Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their determinants and their consequences. Journal of Accounting and Economics, 50(2-3), 344-401. https://doi.org/10.1016/j.jacceco.2010.09.001

Dey, P. K., Roy, M., & Akter, M. (2020) What determines forward-looking information disclosure in Bangladesh? Asian Journal of Accounting Research, 5(2), 225-239 DOI 10.1108/AJAR-03-2020-0014

Farichah, F. (2017). Relationship of earnings management and earnings quality before and after IFRS implementation in Indonesia. European Research Studies Journal, XX (4B), 70 – 81

Francis, J., & Schipper, K. (1999). Have financial statements lost their relevance? Journal of Accounting Research, 37(2), 319–352. https://doi.org/10.2307/2491412

Francis, J., LaFond, R., Olsson, P. M., & Schipper, K. (2004). Costs of equity and earnings attributes,” The Accounting Review, 79(4), 967-1010. https://doi.org/10.2308/accr.2004.79.4.967

Fu, N. P., Flood, C. & Morris, T. (2016). Organizational ambidexterity and professional firm performance: the moderating role of organizational capital. Journal of Professions and Organization, 3(1), 1–16 doi: 10.1093/jpo/jov010

Gianzina-Kassotaki, O. (2017). Leadership and ambidexterity: A multilevel analysis of the aerospace and defense organizations [Dissertation]. Warwick Business School. http://wrap.warwick. ac.uk/95904/1/WRAP_Theses_Gianzina-Kassotaki_2017.pdf (25 July 2022)

Gibson, C., & Birkinshaw, J. (2004). Building ambidexterity into an organization. MIT Sloan Management Review, 45(4), 47-55.

Hahn, T., Pinkse, J., Preuss, L., & Figge, F. (2016). Ambidexterity for corporate social performance,” Organization Studies, 37(2), 213–235

Hameedi. K. S., Union. A. H., Talab. H. R., Almagtome .A. H. (2022). IFRS adoption, cost of equity and firm value: evidence from Iraq. International Journal of Professional Business Review, 7(3),01-14. doi.org/10.26668/businessreview/2022.v7i3.0602

He, Z-L., & Wong, P-K. (2004). Exploration vs. Exploitation: An empirical test of the ambidexterity hypothesis. Organization Science, 15(4), 481-494. DOI 10. 1287/orsc. 1040.0078

Hussainey, K., & Mouselli, S. (2010). Disclosure quality and stock returns in the UK. Journal of Applied Accounting Research,11(2), 154-174 DOI 10.1108/09675421011069513

Irwandi, S. A., & Pamungkas, I. D. (2020). Determinants of financial reporting quality: Evidence from Indonesia Journal of International Studies, 13(2), 25-33. doi:10.14254/2071-8330.2020/13-2/2

Ito, T. (2022). Organizational ambidexterity and firm performance: Effect of two types of exploitation on Japanese video game industry. Journal of Digital Life, 2(7), 1-10.

Kassotaki, O. (2022). Review of organizational ambidexterity research. SAGE Open January-March, 1– 22. DOI: 10.1177/21582440221082127

Khankahdani, M.F., Taftiyan, A., & Ardakani, M.N. (2021). Ranking of indicators of forward-looking information disclosure by the fuzzy analytical hierarchy process. International Journal of Finance and Managerial Accounting, 6(21), 111-127.

Kılıç, M., & Kuzey, C. (2018). Determinants of forward-looking disclosures in integrated reporting. Managerial Auditing Journal, 33(1), 115-144 DOI 10.1108/MAJ-12-2016-1498

Koryak, O., Lockettb,A., Haytonb, J., Nicolaoub, N., & Moleb, K. (2018). Disentangling the antecedents of ambidexterity: Exploration and Exploitation. Research Policy, 47(2), 413–427

Kouki, A. (2018). IFRS and value relevance: A comparison approach before and after IFR Sconversion in the European countries. Journal of Applied Accounting Research, 19 (1), 60-80, https://doi.org/10.1108/JAAR-05-2015-0041

Lastra, F-P. d. l., García-Carbonell, S. N. Martín-Alcázar, F., & Sánchez-Gardey, G. (2017). Building ambidextrous organizations through intellectual capital: A proposal for a multilevel model. Intangible Capital, 13(3), 668-693

Leal, L. T. Y., Girão, L. F. D. P., Lucena, W. G. L., & Martins, V. G. (2017). Persistence, value relevance, and accruals quality in extreme earnings and cash flow situations. Mackenzie Management Review, 18(3), 203-231 http://dx.doi.org/10.1590/1678-69712017/administracao.v18n3p203-231

Lis, A., Józefowicz, B., Tomanek, M., & Gulak-Lipka, P. (2018). The Concept of the ambidextrous organization: systematic literature review. International Journal of Contemporary Management, 17(1), 77-97. doi:10.4467/24498939IJCM.18.005.8384

Longoni, A., & Cagliano, R. (2016). Environmental and social sustainability priorities. International Journal of Operations & Production Management, 35(2), 216-245. DOI:10.1108/IJOPM-04-2013-0182

Lopez‑Sanchez, J.A., & Santos‑Vijande, M. L. (2022). Key capabilities for frugal innovation in developed economies: insights into the current transition towards sustainability,” Sustainability Science, (17), 191–207 doi.org/10.1007/s11625-021-01071-1

Luger, J., Raisch, S., & Schimmer, M. (2018). Dynamic balancing of exploration and exploitation: The contingent benefits of ambidexterity. Organization Science, 29(3), 449-470 DOI:10.1287/orsc.2017.1189

Luo, C., Zhang, D., Luo, B., & Ge, J. (2017). Ambidextrous strategy and firm performance: The moderating effects of organizational slack and organizational life cycle. Business and Management Studies, 3(4), 1-11.

Lyimo, G. D. (2014). Assessing the measures of quality of earnings from India. European Journal of Accounting Auditing and Finance Research, 2(6), 17-28.

Maine, J. E., Samuelsson, F., & Uman, T. (2022). Ambidextrous sustainability, organizational structure and performance in hybrid organizations. Accounting, Auditing & Accountability Journal, 35(3), 734-769. DOI 10.1108/AAAJ-12-2019-4338

March, J. G. (1991). Exploration and exploitation in organizational learning. Organization Science, 2(1), 71–87.

Menicucci, E. (2020). Earnings quality: Definitions, measures, and financial reporting. 1st edition, Palgrave Pivot Publisher. UK.

Mirzajani, J., & Heidarpoor, F. (2018). Income smoothing, investor reaction and earnings persistence. International Journal of Finance and Managerial Accounting, 3(11), 23-31.

Mutisya, P. M., K’Obonyo, P., Ogollah, K. J., & Njihia, M. (2020). Organizational ambidexterity and performance of large manufacturing firms in Kenya. DBA Africa Management Review, 10(5), 23-36.

Nelwan, M.L., Simatupang, C., & Tansuria, B.I. (2020). Value relevance of accounting information in the Presence of Earnings Management. Jurnal Reviu Akuntansi dan Keuangan, 10(2),321- 334. doi.org/10.22219/jrak.v10i2.11856

Nwaigwe, N. G., Ofoegbu, G. N., Dibia, N. O. & Nwaogwugwu, C. V. (2022). Sustainability disclosure: Impact of its extent and quality on value of listed firms in Nigeria. Cogent Business & Management, 9(1), 2079393, DOI: 10.1080/23311975.2022.2079393

O’Reilly, C. A., & Tushman, M. L. (2008). Ambidexterity as a dynamic capability: Resolving the innovator’s dilemma. Research in Organizational Behavior, 28, 185–206.

O'Cass, A., Heirati, N., & Ngo, L. V. (2014). Achieving new product success via the synchronization of exploration and exploitation across multiple levels and functional areas. Industrial Marketing Management, 43(5), 862-872;

Peng, M.Y-P., Lin, K-H., Peng, D. L., & Chen, P. (2019). Linking organizational ambidexterity and performance: The drivers of sustainability in High-Tech firms. Sustainability, 11, 3931; doi:10.3390/su11143931

Penman, S., & Zhang, X. J. (2002). Accounting conservatism, the quality of earnings and stock returns. The Accounting Review, 77(2), 237-264. https://www.jstor.org/stable/3068897

Perotti, P., & Wagenhofer, A. (2014). Earnings quality measures and excess returns,” Journal of Business Finance & Accounting, 41(5) & (6), 545-571. https://doi.org/10.1111/jbfa.12071

Popadić, M., Černe, M., & Milohnić, I. (2015). Organizational ambidexterity, exploration, exploitation and firms innovation performance. Organizacija, 48(2), 112-119. DOI: 10.1515/orga-2015-0006

Prange, C., & Verdier, S. (2011). Dynamic capabilities, internationalization processes and performance. Journal World Business, 46(1), 126–133.

Preda, G. (2014). Organizational ambidexterity and competitive advantages: Toward a research model. Management & Marketing, XII (1), 67-74

Raisch, S., Birkinshaw, J., Probst, G. & Tushman, M. L. (2009). Organizational ambidexterity: balancing exploitation and exploration for sustained performance. Organization Science, 20(4), 685–695 doi 10.1287/orsc.1090.0428

Serra, S., Lemos, K. M., & Matins, M. S. (2022). The Influence of the Board of Directors and the Auditor in the Disclosure of Derivative Financial Instruments: Evidence on Portuguese Capital Market. International Journal of Professional Business Review,791), 01-28 doi.org/10.26668/businessreview/2022.v7i1.240

Soares, J. L., Reis, D. R. dos., Cunha, J. C. da., & Neto, P. J. S. (2018). Organizational ambidexterity: A study in Brazilian higher education institutions. Journal of Technology Management & Innovation, 13(3), 36-46.

Šodan, S. (2015). The Impact of fair value accounting on earnings quality in eastern european countries. Procedia Economics and Finance, 32, 1769-1786

Tamayo-Torres, J., Roehrich, J.K., & Lewis, M.A. (2017). Ambidexterity, performance and environmental dynamism. International Journal of Operations & Production Management, 37(3), 282-299. https://doi.org/10.1108/IJOPM-06-2015-0378

Tuan, L.T. (2016). Organizational ambidexterity, entrepreneurial orientation, and I-Deals: The moderating role of CSR. Journal of Business Ethics, 135(1), 145–159 DOI 10.1007/s10551-014-2476-1

Utami, W. & Wahyuni, P. D. (2018). Forward-looking information based on integrated reporting perspective: Value relevance study in Indonesia stock exchanges. Asian Journal of Economics, Business and Accounting, 8(4), 1-12. DOI: 10.9734/AJEBA/2018/44981

Utami, W., Wahyuni, P. D. & Nugroho, L. (2020). Determinants of stock liquidity: Forward-looking information, corporate governance, and asymmetric information. Journal of Asian Finance, Economics and Business, 7(12), 795–807 .doi:10.13106/jafeb.2020.vol7.no12.795

Vo, X. V., & Chu, T. K. H. (2019). Do foreign shareholders improve corporate earnings quality in emerging markets? Evidence from Vietnam. Cogent Economics & Finance, Economics & Finance, 7, 1698940. https://doi.org/10.1080/23322039.2019.1698940

Weigel, C., Derfuss, K. & Hiebl, M. R. W. (2022).Financial managers and organizational ambidexterity in the German Mittelstand: the moderating role of strategy Involvement. Review of Managerial Science https://doi.org/10.1007/s11846-022-00534-8