Does Discretionary Accruals Affect the Financing Behaviour of Firms? Evidence from Pakistan (A case of selected non-financial listed firms)

Abstract

Purpose- In order to run organizations effectively and efficiently capital structure is consider as essential element. Researchers often try to explain the determinants of capital structure. After the mega corporate scandals like Enron, WorldCom, financial reporting disclosures has become one of the most discussed topics. The prime objective of this research is to explore the relationship between discretionary accruals and financing behaviour of a firm. Design/Methodology/Approach- Secondary research is done in this study in order to find out the relationship between discretionary accruals and financing behavior of a firm. This study covers a period from 2010 to 2015, further the proxy will used to measure financing behavior is gearing ratio and discretionary accruals will be calculated by modified Jones model. In order to find out this relationship fixed effect regression model is applied. Findings Result explains that discretionary accruals have a significant and positive relationship with gearing ratio. This reflects that those firms that manage their earnings have a higher leverage. Whereas on other hand Return on Assets (ROA) and size of a firm have a negative and significant relationship with gearing ratio. Furthermore tangibility has a positive and significant relationship with gearing ratio and Return on equity (ROE) has negative relationship but this relationship is insignificant. Originality / Value-This paper is useful organizations, companies as well as for Institute of Charted Accountants of Pakistan. This paper is equally useful for academic institutions as well as for future researchers.