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Nexus between corporate governance and earnings management in family and non-family firms
Business Administration and Management
Nexus between corporate governance and earnings management in family and non-family firms
Name and surname of author:
Aziza Naz, Monika Naďová Krošláková, Iqra Farheen, Marián Čvirik, Anna Michálková
Year:
2023
Volume:
26
Issue:
2
Keywords:
Accruals earnings management, board independence, corporate governance code, dynamic panel data, family ownership, real earnings management, Pakistan
JEL clasification:
DOI (& full text):
Anotation:
This study explores the relationship between internal corporate governance mechanism and accruals and real earnings management (EM), following Pakistan’s 2012 amended Code of Corporate Governance. It also examines the moderating role of family firms on the relationship among corporate governance mechanisms and accruals and real earnings management. For this purpose, we used a sample of 172 firms listed on the Pakistan Stock Exchange (PSX) for 2012–2019. The dependent variables were estimated by utilizing the generalized method of moments (GMM), fixed random effects and moderation analysis were estimated through Stata. Hausman specification test was used to choose among random and fixed effects. Results report that board size showed a significant positive impact on abnormal discretionary expenses and overall real earnings management. Board independence led to a substantial and negative impact with accruals EM. Managers of familyowned firms are also opportunistically altering the reported earnings. Results illustrate to the users of financial statements that the reliability of financial information depends on the effectiveness of corporate governance. Also, highlight the efficiency of monitory mechanisms and suggest that board independence is one of the practical approaches for an emerging market to restrain the EM practices. Findings are helpful for regulators, policymakers, and investors to regulate and make policies to improve the financial reporting quality in Pakistan. As per the authors’ knowledge, this study adds the novelty by focusing on two critical internal monitoring mechanisms (board independence and board size) in mitigating earnings management, following the 2012 amended Code of Corporate Governance in Pakistan. It will add uniqueness by studying the moderating role of family ownership, as the literature is scarce. The findings of this study highlighted the impact of the internal monitoring mechanisms on earning management practices in Pakistan.
This study explores the relationship between internal corporate governance mechanism and accruals and real earnings management (EM), following Pakistan’s 2012 amended Code of Corporate Governance. It also examines the moderating role of family firms on the relationship among corporate governance mechanisms and accruals and real earnings management. For this purpose, we used a sample of 172 firms listed on the Pakistan Stock Exchange (PSX) for 2012–2019. The dependent variables were estimated by utilizing the generalized method of moments (GMM), fixed random effects and moderation analysis were estimated through Stata. Hausman specification test was used to choose among random and fixed effects. Results report that board size showed a significant positive impact on abnormal discretionary expenses and overall real earnings management. Board independence led to a substantial and negative impact with accruals EM. Managers of familyowned firms are also opportunistically altering the reported earnings. Results illustrate to the users of financial statements that the reliability of financial information depends on the effectiveness of corporate governance. Also, highlight the efficiency of monitory mechanisms and suggest that board independence is one of the practical approaches for an emerging market to restrain the EM practices. Findings are helpful for regulators, policymakers, and investors to regulate and make policies to improve the financial reporting quality in Pakistan. As per the authors’ knowledge, this study adds the novelty by focusing on two critical internal monitoring mechanisms (board independence and board size) in mitigating earnings management, following the 2012 amended Code of Corporate Governance in Pakistan. It will add uniqueness by studying the moderating role of family ownership, as the literature is scarce. The findings of this study highlighted the impact of the internal monitoring mechanisms on earning management practices in Pakistan.
Section:
Business Administration and Management
APA Style Citation:
Naz, A., Naďová Krošláková, M., Farheen, I., Čvirik, M., & Michálková, A.
(2023). Nexus between corporate governance and earnings management in family and nonfamily
firms. E&M Economics and Management, 26(2), 42–57. https://doi.org/10.15240/
tul/001/2023-2-003
Naz, A., Naďová Krošláková, M., Farheen, I., Čvirik, M., & Michálková, A. (2023). Nexus between corporate governance and earnings management in family and nonfamily firms. E&M Economics and Management, 26(2), 42–57. https://doi.org/10.15240/tul/001/2023-2-003
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