The Impact of Corporate Governance on Earning Quality: Empirical Evidence From Pakistan

Abstract

This study investigates and analysed the very important corporate finance area the impact of corporate governance on earning quality. This study consist of firms from food, agriculture, pharmaceuticals and manufacturing sectors listed on the PSX. The total sample taken for analysis is 107 companies belongs from multiple manufacturing sectors. The data covers a time span of 10 years from 2007 till 2016. This study is based on the secondary data which is collected from PSX and individual company portals. The overall results of the study have shown mixed results as multiple variables of corporate governance have been regressed during the study. Board size, CEO duality, Board composition, Board independence, Frequency of board meetings, Audit Committee size, Audit committee meeting and Audit quality have been taken to measure the impact of corporate governance on two variables of earning quality which are earning persistence and earning predictability. The overall results have shown very positive impact of audit meeting and board composition on earning quality. On the other hand CEO duality and board size have shown very negative impact on earning quality. Future researchers have also room for new research areas. Recommendations in contrast of the conclusions of the research this study recommends that the above mentioned sectors can improve their performance and quality of earnings by applying the timely audit meetings and composing a board which have combination of outside directors. The CEO duality must be eliminated as it can be harmful for earning quality.