Department of Finance

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Relationship of Investment Levels with Earnings Management; Evidence from Pakistan
(University of Management & Technology, 2018) Athar Hussain
This study is all about earnings management and its relationship with firm's investment levels. In this study, investment levels are observed against the discretionary revenues (discretionary revenue in this study is used as a proxy for earning's manipulation), Tobin's Q, cash flows generated from operations, prior investment levels and prior growth in fixed assets. This study comprises of nine years data(2008 – 2016) of five manufacturing sectors of Pakistan(Textile, Cement, Sugar, Fertilizer and Oil and Gas). Data is takendirectly from the published financial statements of the public listed companies (listed on Pakistanstock exchange). Results of this study show that investment levels are significantlyrelated with the current period earnings manipulation, Tobin's Q, cash flows generated from operations and prior period investment levels, but there is no significant relationship between current investments levels with initial growth in fixed assets. Results also showthat firms tend to have higher investment levels than expected during the period in which earning is manipulated. Current period investment levels are not significantly related with the previous period's earnings manipulation and also not with the future period's earnings manipulation.