Accounting Policies, Institutional Factors, and Firm Performance: Qualitative Insights in a Developing Country

Daniel Badulescu,Mariam Abbas Soharwardi,Muhammad Nouman Akhtar,Mumtaz Ahmad

doi:10.3390/jrfm14100473

Abstract

This study aims to uncover the determinants for the formulation of accounting practices and their impact on firm performance in Pakistan through the lens of institutional theory. Based on a pragmatic approach, this study has collected data from 455 participants and 21 semi-structured interviews have been conducted. Firstly, it is noted that accounting practices can be traced back to the Mughal regime, and subsequently underwent a major development in the British colonial system. Secondly, our results indicate that institutional factors, namely, accounting regulatory framework, political factors, economic factors, cultural factors, and country-specific factors have also played a major role in the development of accounting practices after the creation of Pakistan as a separate state. Finally, this study suggests that the development of accounting practices have a novel contribution towards the performance of firms. This research thus provides a pathway for policymakers in this county to closing the gaps between accounting practices and the policies of the International Accounting Standard Board (IASB). Furthermore, firms can enhance their performance by implementing international accounting standards. This paper helps Pakistan’s regulatory institutions such as the SECP (Securities and Exchange Commission of Pakistan) and SBP (State Bank of Pakistan) in the process of developing new policies. Such decisions are related, but not limited to: attracting foreign investments, economic expansion, and international trade. Furthermore, it provides a pathway for firms to improve their performance. Ultimately, this research fills the gap as concerns international accounting standards by assessing, both empirically and theoretically, the role of various determinants for the formulation of accounting practices and their impact on the performance of firms.

Highlights

According to international accounting research (IAR), each country has its countryspecific institutional frameworks that distinguish the country’s accounting practices from those of others (Cooke and Wallace 1990; Jizi 2017)
As regulatory framework plays a vital role in the development of accounting practices, we propose the following hypothesis: Hypothesis 1 (H1)
In order to find out the determinates for the formulation of accounting practices in Pakistan by using the institutional theory and their impact on the firm performance, a questionnaire based on a five-point Likert scale was adapted from the previous studies, mainly from the study conducted by (Tahat et al 2018) in Jordan

Summary

Introduction

According to international accounting research (IAR), each country has its countryspecific institutional frameworks that distinguish the country’s accounting practices from those of others (Cooke and Wallace 1990; Jizi 2017). Given the changing global environment, this is an important signal, especially for emerging and developing countries in an Asian Context, considering that the economic dynamism of the world economy has gradually shifted from advanced countries to emerging countries in recent years. These nations account for 80 percent of the world’s population and about 65 percent of global GDP, up from just under half in the previous decade. The global recovery has been slow, emerging markets have contributed over 70% of global growth since the crisis (Pakistan and Emerging Markets in the World Economy 2016)

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Conclusion