Firm Performance: An Analysis of Financial Policy and Audit Quality in Pakistan

Abstract

Purpose: Having effective and well-structured financial policies is essential for a company's success. These policies provide the foundation for measuring and analyzing an organization's performance through a robust financial management system. This study introduces a novel element, namely, audit quality, to enhance our understanding of how financial policies impact a firm's performance. The primary objective of this research is to delve deeper into whether audit quality plays a moderating role in the relationship between financial policies and a firm's performance.
 Design/Methodology/Approach: Discretionary accruals were calculated using a regression model, and descriptive analysis was employed to analyze the data.
 Findings: The results of the study reveal that the connection between free cash flow, agency costs, and a firm's performance is significantly influenced by audit quality. This research particularly offers valuable insights into the manufacturing sector, where performance is of paramount importance.
 Implications: By considering the interplay of financial policy, audit quality, and firm performance, businesses and policymakers can make more informed decisions that contribute to the overall prosperity of the Pakistani corporate sector.