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How to Cite
Board Composition and Functioning, and Shareholders Rights to Information Impact on Earnings Management and Financial Performance: A Three Dimensional Analysis in Commercial Banking Sector of Pakistan
Abstract
Financial information particularly earnings management plays an important role to distort earnings in the banking sector. Many banking companies apply a lot of strategies to manipulate earnings. This paper used a quantitative approach using discretionary loan loss provisions to assess the extent of earnings management practices used in the commercial banking sector of Pakistan. The study applied Panel Corrected Standard Error Model on a data set of listed commercial banks during the period 2012-2018. The results showed a highly significant negative impact of Board Composition and Functioning, and Shareholders’ rights to information on earnings management. Furthermore, the study also found evidence that the rising score of Board Composition and Shareholder’s rights to information is more effective in limiting the earnings management and vice versa. The second phase of the paper focused on the direct effect of earnings management on financial performance (accounting-based measures and market-based measures) and the moderating impact of earnings management with these governance indicators on the financial performance. The results also showed a significant negative impact of the interaction of governance indicators and earnings management on the accounting-based measures (return on equity, return on assets) whereas the insignificant association with market-based measures (market valuation and Tobin’s Q).
Authors
Muhammad Bilal
Ph. D Scholar, Hailey College of Commerce, University of the Punjab, Lahore, Punjab, Pakistan
Zafar Ahmad
Associate Professor, Hailey College of Commerce, University of the Punjab, Lahore, Punjab, Pakistan
Keywords
Board Composition and Functioning, Earnings Management, Financial Information, Shareholders’ Rights to Information
