The Impact of Corporate Governance on Financial Reporting Quality: Evidence from Pakistan

Abstract

This research aims to investigate whether corporate governance (CG) mechanisms and Financial Reporting Quality (FRQ) are related with each other in the context of Pakistan. For this purpose panel data is used and a sample of 200 firms is extracted for the period 2003 to 2017. In this study system GMM and STATA software is used for estimation of parameters. The findings suggest that board independence enhances FRQ by 0.0011% in large sample, 0.0018% in medium sample and 0.0033% in small sample. In addition, audit committee independence raises FRQ in all three samples. Specifically, a rise of 1% in audit committee independence increases FRQ by 0.0088% in large sample, 0.0083% in medium sample and 0.0087% in small sample. Institutional ownership improved the FRQ of Pakistani firms. More specifically, the result indicates that a 1% rise in institutional ownership bring 0.022% increase in large sample, 0.029% in medium sample and 0.018% in small sample. The results show that a rise of 1% in gender diversity brings about 42% increase in large sample, 15% in medium sample and 7% increase in small sample. The result indicates that a 1% rise in shareholder activism is associated with an increase of 6% (large sample), 28% (medium sample) and 22% (small sample) respectively. Concentrate ownership insignificantly affect FRQ in case of large and small sample but on other hand in medium size firm’s the relationship is significant and positive with FRQ.

Keywords: Financial Reporting Quality, Corporate Governance, Pakistan Stock Exchange.

DOI: 10.7176/RJFA/11-17-17

Publication date:October 31^st 2020