Do Board of Directors’ Characteristics Matter in Restraining Earnings Manipulation? Empirical Evidence from Pakistan Stock Exchange

Abstract

This paper investigated the effect of the Board of Directors’ (BOD) attributes on discretionary accruals the proxy of Earnings Management (EM). The basic aim of this study is to test which BOD characteristics are restricting EM. This study used 172 non-financial firms’ data for the period of 2013 – 2017 of Pakistan Stock Exchange (PSX). The data is the panel so “Fixed Effect Regression” Model has been used for analysis and interpretation. The outcomes of this study documented that Expertise in board and CEO expertise has a role in restricting EM. The finding of the study indicates that the larger expert member in BOD and expert CEOs in an organization due to their knowledge can effectively monitor management opportunistic behaviour. Moreover, the size of the BOD is also instrumental in decreasing EM. Other BOD characteristics such as Meetings, Independence, Diversity and CEO duality has no role in reducing EM. This research study extends and throws light on the literature about EM and BOD characteristics in the Pakistani context as well as gives a policy recommendation to the regulator in the country to give more emphasis on BOD Expertise in Pakistani companies.