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Earnings Management and Firm Performance: A Case of Karachi Stock Exchange Listed Firms in Pakistan

Author

Listed:
  • Waseemullah

    (Faculty of Management and administrative Sciences, University of Gujrat, Punjab, Pakistan)

  • Isamil Safi

    (Faculty of Management and administrative Sciences, University of Gujrat, Punjab, Pakistan)

  • Anam Shehzadi

    (Faculty of Management and administrative Sciences, University of Gujrat, Punjab, Pakistan)

Abstract

Purpose: Earnings management is an important issue for the investors since last many years. This study is an attempt to examine the impact of earnings management on the firm performance in Pakistan. Methodology: The study employed a large sample of 317 firms listed on Karachi Stock Exchange covering a period of 2002 to 2012. Findings: Results show that the Earnings Management has a significantly positive impact on ROA. However, it showed insignificant relationship with Tobin’s Q. The results suggest that family dominated firms prevalent in Pakistan enable controlling shareholders monitoring the managers and restricting them from using unfair earnings management practices. Recommendations: This study is particularly important for managers, investors and analysts for decision making, facilitating them in understanding the earnings management-performance relationship.

Suggested Citation

  • Waseemullah & Isamil Safi & Anam Shehzadi, 2015. "Earnings Management and Firm Performance: A Case of Karachi Stock Exchange Listed Firms in Pakistan," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 3(6), pages 278-285, June.
    • Handle: RePEc:ijr:journl:v:3:y:2015:i:6:p:278-285
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    References listed on IDEAS

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    1. Guojin Gong & Henock Louis & Amy X. Sun, 2008. "Earnings Management and Firm Performance Following Open‐Market Repurchases," Journal of Finance, American Finance Association, vol. 63(2), pages 947-986, April.
    2. Dechow, Patricia M., 1994. "Accounting earnings and cash flows as measures of firm performance : The role of accounting accruals," Journal of Accounting and Economics, Elsevier, vol. 18(1), pages 3-42, July.
    3. Leuz, Christian & Nanda, Dhananjay & Wysocki, Peter D., 2003. "Earnings management and investor protection: an international comparison," Journal of Financial Economics, Elsevier, vol. 69(3), pages 505-527, September.
    4. Guidry, Flora & J. Leone, Andrew & Rock, Steve, 1999. "Earnings-based bonus plans and earnings management by business-unit managers1," Journal of Accounting and Economics, Elsevier, vol. 26(1-3), pages 113-142, January.
    5. Francis, J & Schipper, K, 1999. "Have financial statements lost their relevance?," Journal of Accounting Research, Wiley Blackwell, vol. 37(2), pages 319-352.
    6. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
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    Cited by:

    1. Asim, Aysha & Ismail, Aisha, 2019. "Impact of Leverage on Earning Management: Empirical Evidence from the Manufacturing Sector of Pakistan," Journal of Finance and Accounting Research, University of Management and Technology, Lahore, vol. 1(1), pages 70-91, February.

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    More about this item

    Keywords

    Earning management; Firm performance; Discretionary accruals; KSE;
    All these keywords.

    JEL classification:

    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management

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