School of Business and Economics (SBE)

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Browsing School of Business and Economics (SBE) by Subject ": Discretionary Accruals, Earnings Management"

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    Corporate Governance and Earnings Management
    (University of Management and Technology, 2018) Mohsin Mumtaz
    The research employs fixed effects methodology to examine the impact of corporate governance on earnings management in non-financial firms of KSE 100 index within Pakistanfrom the period 2010 to 2016. Corporate governance mechanisms examined comprise board size, board meetings, audit committee independence, audit committee meetings, big 4 audit firms and managerial ownership. While earnings management is measured through discretionary accruals measured in accordance with the Modified Jones Model (1995). Results of the study indicate that larger board encourages earnings management through increased board diligence appears to have a controlling impact on profits manipulation by management. Further, we find that lower percentage of insider shareholding encourages earnings manipulation. This could stem from the overriding influence of larger block holders and institutional shareholders on the smaller shareholders for the achievement of short term profits by firm leading to earnings management. While more independent members on audit committees encourage earnings manipulation which is in line with the findings related to board size. We also find that more the board members meet, would reduce the earnings management practices. It suggests that board and audit committee members may encourage earnings manipulation from the need to protect their credibility and reputations in the markets by showing robust earnings and firm performance. This is the first study that provides glimpse of the impacts of corporate governance changes in response to the 2012 SECP Code of Corporate Governance, and we contend based our findings that there is a need for tougher legislation, and more elaborate measures with which to assess corporate governance performance within firms.