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Does earnings management mediate the impact of financial policies on market value of firms? A comparative study of China and Pakistan

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  • Muhammad Rizwan Kamran

    (University of Science and Technology of China, No. 96, JinZhai Road Baohe District, Hefei, Anhui 230026, P. R. China)

  • Zheng Zhao

    (University of Science and Technology of China, No. 96, JinZhai Road Baohe District, Hefei, Anhui 230026, P. R. China)

  • Haji Suleman Ali

    (University of Science and Technology of China, No. 96, JinZhai Road Baohe District, Hefei, Anhui 230026, P. R. China)

  • Fiza Sabir

    (Government College University Faisalabad, Allama Iqbal Road, Faisalabad, Punajab, Pakistan)

Abstract

The study adds new mechanism of earnings management which explores the mediation between financial policies and market value of firms. A comparative study conducted on manufacturing sectors in which sample of 857 companies for China and 150 companies for Pakistanis taken from lists of Stock Exchanges during the period 2012 to 2016. Discretionary accruals have been calculated using the modified Jones Model (1995) and finally Panel analysis was used to analyze the data. Result discloses that in both countries, managers’ Earning Management practices could significantly mediate between these financial policies and firm’s value as measured by Tobin’s Q and stock return. This is the first empirical evidence that make available importance of financial policies which could efficiently influenced by earnings management and ultimately influences the firm’s performance.

Suggested Citation

  • Muhammad Rizwan Kamran & Zheng Zhao & Haji Suleman Ali & Fiza Sabir, 2018. "Does earnings management mediate the impact of financial policies on market value of firms? A comparative study of China and Pakistan," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 5(01), pages 1-22, March.
    • Handle: RePEc:wsi:ijfexx:v:05:y:2018:i:01:n:s2424786318500068
    DOI: 10.1142/S2424786318500068
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    References listed on IDEAS

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    Cited by:

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