Examining the intervening effect of earning management in governance mechanism and financial misstatement with lens of SDG and ESG: a study on non-financial firms of Pakistan.

Abstract

In today's corporate world, a company's long-term viability and prosperity depend on its corporate governance practices. The present study investigates the interplay between financial misrepresentation, earnings management, and corporate governance within the context of Pakistan. To estimate the financial data of enterprises obtained from non-financial organizations listed on the Pakistan Stock Exchange a panel regression analysis was conducted. The analysis covered the time from 2009 to 2020 and employed quantitative data. The findings of the study show that the different aspects of corporate governance mechanisms have varying levels of influence. Specifically, remuneration paid to directors had a significant impact on financial misstatement, while the size of the board strongly impacts the earning management. The financial misstatement was also found affected by the earning management. The M score (statistical model used to predict the probability of financial misstatement) positively influenced when board diligence was incorporated in the mediation of earning management. It is important to note that this study only considers the internal governance mechanisms of firms, suggesting that future research could benefit from the inclusion of external governance mechanisms for a more holistic model. This study is aligned with the ESG's governance aspects and SDG-17, providing valuable insights for specialists, financial backers, policymakers, and experts. The results of this study catalyze further research in this area and can aid in achieving SDG 17 by raising awareness of the significance of good governance practices, ethical reporting that leads to sustainable firm performance, and ensuring long-term economic growth and development.