Earning Management Leverage and Firm Performance: Empirical Evidence from Pakistan

Abstract

Using the regression analysis by taking year and industry impact, we conducted the study to see how debt can be used to mitigate the negative impact of earning management on the performance of the company. We take the sample of non-financial firms from Pakistan between year 2009 to 2015. Our results conclude that firms which are engage in earning management activities by AEM or REM both impacts negatively on the performance of the company. The role of debt has a positive impact on the performance of the company and it can be used by the shareholders to monitor the activities of managers and attenuate the negative impact of earning management activities. We emphasis that company managers are involve in earning management activities in the context of Pakistan and role of debt is important to mitigate its negative impact on firm performance.

Keywords: Profitability, Leverage, Earning Management, Pakistan