Financial performance, Earning Management, and Corporate Governance: A study of Selected Pakistani Non-Financial Firms

Abstract

This study explores the relationship between corporate governance, earnings management, and financial performance of firms. The sample comprises of 39 non-financial firms listed in the Karachi Stock Exchange for the period 2011-2015, with a total of 195 firm year observations. The study employs a correlational research approach to examine the impact of board composition, institutional shareholding, audit committee, audit score, and executive compensation on the performance of pre-managed firms. The dependent variable used in the study is absolute discretionary accruals, while explanatory variables include X1, X2, X3, X4, and D1. The findings reveal that only firm size has a significant impact on accruals, and there is evidence of multicollinearity in the results. To address this issue, the study uses z-score values and reruns the test, which shows no multicollinearity issue. However, only firm size continues to have a significant impact on accruals. In a third test, the issue of multicollinearity is resolved, and the results show that only firm size has a positive impact on accruals, while the other variables do not have any impact.