View
223
Download
0
Category
Preview:
Citation preview
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
1/51
Page 1
ROLE OF CORPORATE GOVERNANCE
IN IMPLEMENTING IFRS IN LISTEDCOMPANIES OF PAKISTAN
In the partial Fulfillment for the Degree of
BS (Hons)
LAHORE SCHOOL OF ACCOUNTANCY & FINANCE
THE UNIVERSITY OF LAHORE(2013)
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
2/51
Page 2
The University of Lahore
Lahore School of Accountancy & Finance
Supervisory Committee
We the Supervisory Committee, certify that the contents and the form of
thesis submitted by ( ) have been found satisfactory andrecommend it for the evaluation of the External Examiner for the award of
degree of BS (Hons) (Discipline).
Supervisor
Co-Supervisor
Member
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
3/51
Page 3
The University of Lahore
Lahore School of Accountancy & Finance
Examination Committee
The Thesis viva of _____________ was held on ----------------------------- atthe Lahore School of Accountancy & Finance, The University of Lahore.
The Supervisory and Examination Committee gave satisfactory remarks onthe thesis and viva and were approved for the award of the degree of BS
(Hons) (Discipline).
_______________ ______________
External Examiner Internal Examiner
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
4/51
Page 4
The University of Lahore
Lahore School of Accountancy & Finance
Undertaking
I ___________, Registration No: _____________ declare that the contents
of my thesis entitled Role of Corporate Governance in Implementing IFRS
on Listed Companies of Pakistan are based on my own research findings
and have not been taken from any other work expect the references and has
not been published before.
I also undertake that I will be responsible for any plagerization in this thesis.
Students Name
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
5/51
Page 5
The University of Lahore
Lahore School of Accountancy & Finance
Plagiarism evaluation report
This is to certify that I have examined the Turnitin report of the thesis
entitled Role of Corporate Governance in Implementing IFRS on Listed
Companies of Pakistan.
The thesis contains no text that can be regarded as plagiarism.
The overall similarity index obtained from the Turnitin software is ___%.
Supervisor
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
6/51
Page 6
Dedication
To Whom the World Owes its Existence Hazrat Muhammad (P.B.U.H)
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
7/51
Page 7
Acknowledgement
First of all I like to thank to my GOD who has complete knowledge and guide me
in every field of life and enabled me to complete my theses. I like to pay respect to the
university which has provided me with such opportunity to be a part of this institution. I
am heartily thankful to me supervisor _____________________whose encouragement,
guidance and support from the beginning to the final level help me to develop an
understanding of the subject. Thanks to all Thesis Committee who taught me that how to
design my theses. They inspired me and support me throughout the work.
I am greatly thankful to my family: my parents who supported me throughout my life.
Also special thank to my friends for their support and help in completing this theses.
Lastly, I prefer my regards and blessings to all of those who supported me in any respect
during the completion of the project.
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
8/51
Page 8
Abstract
This paper investigates that there is a relationship among the corporate
governance mechanism and the earning quality of the company. The aim of the research
was to find out the relation of corporate governance mechanisms like, board size, board
independence, gender diversity on the board, absence of chief executive officer as
chairman or vice chairman and presence of audit committee and its independence upon
the earning quality of the company. The researcher has identified the governance
mechanism as the independent variable and the earning quality as a dependent variable. A
survey was conducted by the researcher within the limited time frame. Then the data
collected from the survey was interpreted with the help of multiple regressions in SPSS
statistical software. The finding of the research shows very significant and positive
relations between corporate governance mechanism and companys earnings
performance.
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
9/51
Page 9
Table Of Contents
Chapter No: 1 .............................................................................................. 10
Introduction ............................................................................................. 10
Chapter No: 2 .............................................................................................. 14
Literature Review ..................................................................................... 14
Chapter No: 3 .............................................................................................. 23
Methodology ........................................................................................... 23
3.1 Theoretical framework.................................................................... 23
3.2 Hypotheses ..................................................................................... 26
3.3 Research design .............................................................................. 27
Chapter No: 4 .............................................................................................. 30
Analysis of data ........................................................................................ 30
Chapter No: 5 .............................................................................................. 38
CONCLUSION ........................................................................................... 38
5.1 Recommendations .......................................................................... 39
References .................................................................................................. 40
Appendix: .................................................................................................... 43
Tables: ..................................................................................................... 43
Survey ...................................................................................................... 50
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
10/51
Page 10
Chapter No: 1
Introduction
After the revelations of the big corporate scandals played by the multinational
companies in early 2000's.A lot of work is done in the field of corporate governance
practices. These set of rules were introduced to enhance the check processes on the public
listed companies reporting and disclosures. Corporate governance mechanism is a system
which is applied by the management of the company for better supervision, control and
effectiveness of financial reporting standards in the company. In Pakistan a large amount
of work is done in the field of corporate governance with the increase of people attraction
towards the investment point of view. In this study I am searching out a relation between
the adoption of the corporate governance mechanism and the enhancement in the earning
quality of the company. The reason to select this topic is to promote the practices of code
of corporate governances within the companies to create confidence in investors and also
to enhance earning quality of the companies with better practices of the code. Researcher
wants to find out the role of corporate governance in the implementation of accounting
standards and for this purpose. He finds the relationship between adopting governance
mechanism and the earning quality of the company. The purpose of my research is to see
the impact of adopting corporate governance mechanism on the earning quality of the
company.
This strategy is applied only to view the perception of different people working in
the company at different levels about corporate governance and does it enhances earning
quality of the company. When the survey is conducted different types of opinions were
collected by me. Then I have interpreted their opinions with the help of multiple
regressions in SPSS statistical software and the conclusion on which I have reached is
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
11/51
Page 11
that adopting corporate governance mechanism shows significant relation in enhances the
earning quality in terms of high company performance, better financial ratios and increase
in shareholders wealth. The main users of this research study are the existing and the
potential investors of the company. Better compliance with the code of corporate
governance builds confidence among the shareholders or the investors of the company. In
Pakistan these practices of corporate governance are supervised by the security exchange
commission of Pakistan in the all listed companies in Pakistan. All the companies which
are listed have to publish the statement of compliance with the code of corporate
governance to show its compliance with rules regulated by the security exchange
commission of Pakistan. This compliance statement builds confidence among the
investors of the company that their rights are protected and no one is snatching his money
from him.
Another important work performed by the corporate governance structures is to
reduce agency costs and enhance the earnings quality and the reporting. There are
different types of corporate governance mechanism which are widely used in all the
companies listed in Pakistan. Some of them are like; board size in which we see the
number of board of directors appoints by the investors of the company to handle the day
to day operation of the company. They are responsible for all the decision made by the
company and their sole duty is to oversight the controls that are applied within the
company and increases shareholders wealth.
Another important factor in corporate governance mechanism is that board
independence which means what is the percentage of non-executive directors in the
composition of the board. The main reason of it to check the authority that the director
posses within the company and to protect the rights of the shareholders. So the people
who are charged with governance within the company do not manipulate the earnings for
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
12/51
Page 12
their personal interests. Formation of the audit committee is the system introduced by the
corporate governance structure to ensure the quality of financial reporting and disclosures
made by the company. It comprises of the non-executive directors only and the head of
that committee is the independent director. The duty of the audit committee is to
oversight the internal controls design by the management of the company and to facilitate
the external auditor during the statutory audit of the company.
Corporate governance mechanisms promote the treatment of equality with the
shareholders. To protect their investment these set of monitory rules applied on the
management of the company. So they will understand their responsibilities towards the
company and also towards the shareholders who has given them their investments to run
the company. Corporate governance also describes the rules and eligibility criteria for
those persons as well who are appointed by the shareholders to handle the management of
the company. This is to ensure that a competent person is handling the matters and
making decisions rationally to increase the companys performance and to maximize
shareholders wealth.
Corporate governance emphasis on the transparency of the data and require proper
disclosures for the work done. It shows that the management of the company is not hiding
anything from the owners of the company or if anyone among the management of the
company tries to manipulate the earnings will be caught. Institutional investors mean
other companies which are investing into our company like insurance companies, mutual
funds and so on.
It is difficult to measure the governance practices in numeric terms that are why
the researcher has conducted a survey regarding good corporate governance practices and
its relation with earning performance of the company. The time frame was limited
although the results which have been obtained from the interpretation of the survey are
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
13/51
Page 13
realistic according to the resources that the researcher have while conducting the research.
The researcher has achieved his objectives which show a positive and significant
relationship between adopting governance mechanism and earning quality of the
company.
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
14/51
Page 14
Chapter No: 2
Literature Review
Man and Wong (2013) had studied the effect of corporate governance in
eliminating or reducing the earning management extent. They used Anglo-American
system to check the effectiveness of corporate governance system. They have viewed
different corporate governance mechanisms. As a result negative relation with the earning
management is found. The earning quality can be enhanced if the directors are
independent and have sound knowledge in the perspective of finance which will provide
incremental control effects on earning management. Audit committees can oversee the
internal controls of the company for better check and balance on the financial statements
for the assurance of the quality.
Shiri, Vaghfi, Soltani, and Esmaeli (2012) stated that the earning qualities can be
enhanced by reducing the managerial conflicts among the managers and the investors.
This is an inductive study thats why past and historical financial information is utilized.
The quality is tested by increasing the number of independent directors. They tested this
assumption through regression analysis which is aided by the SPSS statistical analysis
software. Then the outcome was that external corporate governance mechanism is
resulted in enhances the earning quality with the help of more independent directors in the
board and they will reduced the conflicts arising among the management and the
investors and also accrual quality is enhanced by it.
Hili and Affes (2012) have empirically tested the impact of gender diversity on
the board of directors effect on the earning quality. This research was conducted on the
French companies. These authors used Arellano and bond autocorrelation test to examine
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
15/51
Page 15
GMM. After the analysis of SBF 120 index they have found out that there is no
significant change in the performance of the company with homogeneous (all men) board
in respect to heterogeneous (men and women) board. But this study opens a door of
further research that what is the impact of heterogeneous boards and its implementations
on the performance of the company.
Uadiale (2012) studied the role of board composition and audit committee on the
earning management in Nigeria. They used survey research method on listed companies
of Nigeria. So they suggest that the board of the company must contain a reasonable
number of independent directors and the audit committee members must have a consistent
level of financial background, then the earning management likelihood can be reduced. In
recent years a large amount of attention is given to the earning management of the
company because they are linked to financial statements which are being reported. These
reported statements build the confidence of the investor in the company.
Bistrova and Lace (2012) wanted to search out the relation of weak corporate
governance mechanisms with low earning quality in central and eastern European
countries. They use the regression and the quartile analysis to verify the variables and the
result was a negative relation among low corporate governance practices and poor earning
quality. They have linked the cash flow with the accruals to find it. It seems that the
investors of central and eastern European countries can invest in public listed companies
without any hesitation because the corporate governance level of those companies is high.
So the chances of manipulations in earnings are quite obsolete.
Sirat (2012) investigates the impact of firm size, in the corporate governance
practices on the earning management. They have selected a population size of whole
manufacturing sector listed in Indonesia stock exchange consisting of 157 units. They
have selected 117 units on basis of progress and analyze their data for 5 years from 2002-
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
16/51
Page 16
7. The sample if it is a conglomerate company or not. A survey was conducted of the
literature books. Multiple regressions were used to analyze the influence of corporate
governance on the magnitude of earning management. The result was if the size of the
company is huge then the earning will be smaller. The earning management of the
company is better if its family owned then normal structure of the company. So company
size proves negative effect on the earning management of the company.
Abed, Al-Attar, and Suwaidan (2012) studied the impact of corporate governance
mechanism on the earning qualities for Jordanian firms 2006-9. They conducted this
research on the companies which are being listed in Amman Stock Exchange. They used
the multiple OLS regression analysis with the help of SPSS version 17. The findings
show no significant relation among the corporate governance mechanism and earning
management except the board size. The number of board of members must not be huge so
that the earning management can be reduced by management size.
Dichev, Graham, Harvey, and Rajgopal (2012) find out some things which
describe the earning qualities variations through large survey and conducting interviews
of the people charge with governance. High qualities of earnings are backed by actual
cash flows. Earning quality is also driver by discretionary factors as well. Earning
manipulations are inevitable when the controls in the company are more effective. The
half of the earning qualities is determined by business model, macroeconomics factors.
Athanasakou and Olsson (2012) search out the two different perspective of
corporate governance first, the impact of innate earning quality with the practices of
corporate governance and secondly, the impact of environment of the company
performance. They use different measures like, accrual quality, absolute abnormal
accruals and earning variability to interpret the data. The result they have find out that
there is a positive relation between the both perspectives of corporate governance.
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
17/51
Page 17
Accrual diversity has positive effect on the performance of the company. This also shows
a positive relation among the environment and the performance of the companies like
motivation and rewards enhance the performance of the employee which ultimately
enhance the earning quality or the performance of the company.
Campa and Donnelly (2011) investigated the impact of corporate governance on
the earning quality in the legal context. They have compared two legal corporate contexts.
One of them is Italy and the other one is UK. In result they have found out that where the
legal context of the country is weak the corporate governance plays a major role in the
enhancement of the earning quality. Government needs to formulate new policies through
which a better control can be established over the earning qualities.
Sun, Liu, and Lan (2011) investigated if there any difference in the earning
management quality if the head of department is a female. They have observed a
company for five years but as a result they find no association among this gender
discrimination in the corporate sector. There is no change in earning qualities if the head
of the department is a female but the environment is quite pleasant than usual.
Moradi and Nezami (2011) studied the effect of ownership centralization and
institutional ownership with the earning quality. They have conducted research on
companies listed in Tehran stock exchange. The authors have applied Linear regression
and correlation analysis, Fisher test and t-testate to test their hypotheses. In general the
result shows positive relation among ownership centralization and institutional ownership
but this relation is not significant enough or in other words the companies listed in Tehran
stock exchange are less affected with this in measuring earning quality.
Wang and Gulzar (2011) investigated the impact of corporate governance
practices in reducing earning management in shanghai and Shenzhen stock exchange,
china. They applied correlation and regression analysis on the governance practices of the
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
18/51
Page 18
firms listed in these stock exchanges. The outcome of their research was a negative
relationship is established between earning management and corporate governance
characteristics like number of board of directors, their duality, their sex, and their
ownership structure in china. We also find that the concentrated ownership reduces
discretional current accruals by preventing opportunistic mangers behavior. This research
has broadened the scope of earning management and corporate governance characteristics
especially for china because in china no one has conducted such type of research before.
Liang and Shan (2011) investigated the impact of IFRS mandatory adoption on
the quality of earnings and if the effectiveness of the corporate governance mechanism
can be used as a proxy in determining the quality of the earnings. They compare the
accrual quality of before and after mandatory adoption of IFRS in two countries of
Europe specifically UK and Germany. The results show the enhancement in the quality of
the earning in post mandatory adoption of the IFRS and the adoption of corporate
mechanisms shows positive relation with earning quality of the firm.
Houqe, Zijl, Dunstan, and Karim (2010) tested that the IFRS adoption does not
increase the earning quality of the company but if the investors protection regime is
strong then the IFRS enhances the quality of the earnings in the company. This study is
conducted with the reference of cross- section among different countries. They have
conducted research on UK and German based companies. The result show positive
relation among the investors protection regime and the quality of earning in the
company. This result might be different under different investor protection regime
policies applicable in different countries.
CHEN and LIU (2010) had investigated the impact of changes in the best
corporate governance practice principle on the earning quality in the emerging markets.
They use regression analysis among pre and post CGBPP to test their hypothesis. The
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
19/51
Page 19
outcome of their research was that the independence of corporate boards enhance the
management opportunistic earnings because in the absence of the independent board the
earning management of the company in emerging markets and in opportunities reduces
because if, the check and balance on the monitory system is reduced. Then the board can
manipulate earnings and show biasness in decision making.
Almeida, Lima, and Lima (2010) wanted to find out the performance of the
Brazilian listed companies to get listed in the New York stock exchange. They used
correlation and regression analysis among the companies listed in Brazilian and New
York stock exchanges. The evidence from the finding was that good corporate practices
are required to enhance the earning quality of the Brazilian firm to get listed in the New
York stock exchange.
Leuz (2010) describes the reliability of earning quality in different legal context
with in different countries legal systems. The outcome of his research was different
countries have different legal requirements to fulfill the principles of corporate
governance to enhance earning quality. If there is any difference in convergence of these
regulatory principles then IFRS adoption will be utilized as a benchmark.
Sivaramakrishnan and Yu (2008) used the Gompers index as a tool to measure
the strength of corporate governance, investigate whether accrual quality and governance
structure effect the earning quality of the firm. The outcome of the result was that, if the
corporate governance is high, then earnings quality is enhanced. Good governance
provides high quality of accruals diversity which ultimately enhances the earning quality
and increases the quality earning predictability of the firm.
Javed, Iqbal, and Hasan (2006) find out the relation of corporate governance
practices with firm performance in Karachi stock exchange listed companies. A very low
work is done in this field in Karachi stock exchange. They used Tobin Q, CGI and other
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
20/51
Page 20
control variables to construct a model and take average of these three years 2003-5. The
result was there was a positive relation among in firm level governance practices with the
performance of the company. They also find out that only relaying on the corporate
governance practices disclose in the annual reports are not enough to evaluate the
reliability of the firm performance or earning quality. Strict rules should be regulated by
the Karachi Stock Exchange to enhance the performance of the companies which are
being listed in it.
C and Vera-Muoz (2005) studied the tremendous change brought recently in the
corporate governance practices, where the roles and responsibilities of the audit
committee members and the board of directors were redefined to improve the quality of
earnings and reporting within the firm. The findings were that, the duties of the audit
committee members were enhanced because they have to monitor the controls applied by
the management over the financial statements. If the members of the audit committee are
not competent enough then there will be chance of manipulations in the controls due to
which the reliability of the quality of earnings will be affected. The members of the audit
committee are independent from the management because their independence increases
the credibility of the financial reporting.
Chen, Elder, and Hsieh (2005) investigated the impact of corporate governance
practices on the Taiwan listed companies. They want to find out the impact of voluntary
creation of independent directors on the earning quality. They use the regression model to
test the relation of corporate governance to earning management. The outcome of the
research concludes a negative relation among the number of independent directors and the
likelihood of earning quality. Our study also demonstrate the voluntarily adoption of best
corporate governance practice principles might enhance the effectiveness of independent
directors in constraining earning management in Taiwanese listed companies.
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
21/51
Page 21
Easley and OHara (2004) investigated that, the firms in which the executives and
the managers owned the stocks of the company. They tried to enhance the earning quality
of the firm by any means necessary. They also concluded that irrespective of how you
understand the governance mechanisms. It will reduce the information asymmetry and
enhance the reporting quality of the firm. In result better financial reporting enhances
earning quality as well. By doing this the firm information becomes more reliable and
proves to be useful in creating confidence among the investors. Investors feel safe due to
the quality of information which is provided to them.
Ismail (2002) investigated the relation between the earning quality and the
corporate practices after the implementation of the Malaysian code 2001. The findings of
the research were that, the number of members in the board and in the audit committee
show positive relation with the earning quality. If the number of members in the board
and in audit committee is higher then, they can perform their duties more efficiently and
in result to which earning qualities were enhanced. The result also defines that the
companies with concentrated ownership like (family owned) have low earning quality
then the firms which do not have concentrated ownership.
Lang, Becke, and Blan (2002) studied the opportunity for the investors in current
situation. The result was that to promote the investors confidence we need to enhance the
corporate governance practices. These rules are regulated by the stock exchange to
promote investors confidence. When these rules are strictly monitored then the
performance of the firm increases so as the earning quality
Rehman and Ali (2001) investigated that the earning management can easily be
manipulated by the firms with in the applicable financial reporting framework within the
firm. So there is a need to establish the best practices of the corporate governance. So,
that the firm cannot manipulate the adoption choices which are provided by the
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
22/51
Page 22
international financial reporting standards for better presentation. These corporate
governance practices will enhance the earning management of the firm.
Bebchuk and Roe (1999) investigates the impact of different economies on the
corporate structure of the firms which will affect its earning management. The findings
were the economies of some countries promote the corporate structure to be family
owned or institutional owned. Such kind of corporate structure is efficient but if there is
an involvement of the independent members in the structure then the reliability on the
quality of earning and reporting can be enhanced further.
Yermack (1996) investigated that, the efficiency of the companies with small
board size is more effective than others. The researcher proposed that, if the board size is
small and only competent persons are members of such board then, they can work more
efficiently and due to small board size the earning management will be enhanced.
Another very important characteristic of corporate governance is that the chair person and
the chief executive officer must be two different persons to avoid the concentration of
power in one hand which can lead the company into the conflict of interest and reduces
earning quality.
Cheng (1996) demonstrated the existence of this link between the quality of
earnings and the information content of earnings. They found that the permanent
accounting earnings are less informative in relation to future earnings and cash flows.
Earning qualities are more reliable when the opportunistic behavior of the managers is
monitored by the control system of the company. In other words monitoring attributes
have the capacity to improve the earning qualities. So, effective internal control system
can play a role in the enhancement of the earning qualities as well.
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
23/51
Page 23
Chapter No: 3
Methodology
3.1 Theoretical framework
Research on corporate governance is increasing due to large financial crisis in past
few decades. The dependent variable of interest in this research is earning quality. I
attempt to explain the variance in this dependent variable by six independent variable (1)
percentage of non-executive directors members, (2) absence of CEO as chairman or vice
chairman, (3) percentage of institutional investors (4) Audit committee size (5) Board size
(6) Gender diversity in composition of board. In my view these variables can explain the
earning quality better because on these variables I can measure the impact of corporate
governance mechanisms adopted by the company.
The non-executive directors are the ones appointed in the composition of the
board to exercise the rights of the board members. They dont have any kind of financial
or personal interest in the earnings of the company. They are elected on the board on
check the independence of the board of directors in decision making and to protect the
rights of the shareholders. Absence of CEO as chairman, CEO is the chief executive
officer of the company he is the one who is authorized to signed the agreements on the
behalf of the company. He makes the decisions of the company rather chairman is one
who is the head of the board of directors. He is responsible to conduct meetings of the
board and to communicate the agenda with the board members. Chairman is responsible
to lead the discussion in the board meeting. He must remain neutral in the discussion to
conclude the decision. Percentage of institutional investors shows how much people are
pooling wealth into the company. If large number of people is putting their wealth then
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
24/51
Page 24
they want to influence their decisions in the company which can affect the decision
making of authorize people or can create biasness among them. Audit committee is
formed to oversight the financial reporting of the company and the process of disclosures.
The members appointed in the audit committee are from the board of directors and a
separate chairman is also appointed for the audit committee. Audit committee also
ensures the compliance of the company with rules and regulations, ethics and with all
statutory requirements. Gender diversity means the percentage of male and female on the
composition of the board and their impact on the earning quality of the company.
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
25/51
Page 25
Symmetric Diagram
Independent Variable Dependent Variable
The numbers non-executive directors play an important role in the earning quality
of the company. Thats why non-executive directors are hired on the composition of the
board to maintain the check and balance on the performance of the company. These
independent members over sight the methods used by the management of the company in
reporting. These non-executive directors are appointed to protect the right of share
holders. CEO of the company is most important person in any structure of the company.
He is the person who binds the company in different types of agreements. The final
decisions are taken by this person in the company. He handles all the operations of the
company. If he is not the chairman of the board then, it might happen that there been a
rise of conflict among the CEO and the chairman of the company. If the chairman
concludes the session of the board meeting and the CEO doesnt agree with him then
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
26/51
Page 26
there will a conflict. The earning quality is affected due to this reason. (Uadaile, 2012)
said board composition and the independence of audit committee play significant role in
the earning quality. The percentage of institutional investors plays a very important role
in the earning quality of the company. If the percentage of investors is high then they
want voting rights or to oversight the decisions which were taken by the management.
This will affect the managements capabilities of doing the work according to prescribed
principles.
The investors influence for greater return can affect the earning quality of the
company. Audit committee oversight the reporting quality and the disclosures made by
the management of the company which will ultimately affect the earning quality of the
company.(Affes,2012) said that gender diversity has significant relation with the earning
quality. If the percentage of non-executive directors on the board is high then the earning
quality will be enhanced in terms of performance of the company. Better corporate
governance practices will results in better performance in the company and enhance
earning quality.
3.2 Hypotheses
H1: there is a significant relationship exists between adopting governance mechanism and
enhancing earning quality.
H0: there is no significant relationship exists between adopting governance mechanism
and enhancing earning quality.
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
27/51
Page 27
3.3 Research design
3.3.1 Problem to be investigated
In this research the problem which was investigated was the impact of adopting
governance mechanism on enhancing earning quality. This study is very important
because these set of governance rules and regulations which are imposed on the listed
companies are to enhance the transparency and disclosures quality of the company. This
will result in enhancing the earning quality of the company. This research is important
because some people thought that applying governance practices in the company is only
the waste of time and resources and it does not help in enhancing any kind of companys
performance. The main users of this research will be the investors because good
governance practices create confidence among the investors of the company and enhance
company earning quality.
3.1.2 Scope of Study
This is a qualitative study thats why questionnaires were made keeping in view
the independent variables and the dependent variables of the study. This study was
conducted through the survey which was conducted from different corporations to test the
relationship among the governance practices and earning quality. The research is realistic
and its practically applicable in industries. Good governance adoption enhances the
economic growth as well with companys earning quality. Governance plays an important
role in building confidence among the investors of the company. Thats why a lot of
importance is given to governance practices now-a-days within the listed companies in
Pakistan. This study helps the potential investors of the company to gain confidence on
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
28/51
Page 28
the companys in which they have invested and due to increase of performance in the
company they can expect larger returns as well.
3.1.3 Sources of data
The required information for this research paper is gathered from following two
sources:
I have studied different literature and go through the history of research studies, by meansof studies in library (including books, articles, journals and academic discussions) is used
and foreign research papers and theses are also used in this study work which has been
received via the internet service.
The data calculated from the survey for the study of variables like (percentage of non-executive directors, absence of CEO as a chairman or vice chairman, size of audit
committee the percentage of the institutional investors, gender diversity in board
composition and earning quality) are required to test the assumptions made.
3.1.4 Relevance of data
The data which was collected from the survey is relevant because it provide
sufficient information regarding the variables which I have selected to find the relation
among the governance and the earning quality. The study is applicable and is conducted
within a specific time frame. The data is reliable because the survey is conducted within
the corporations and its findings justify the variables of concern.
3.1.5 Model of study
To interpret the results conducted from the survey multiple regressions is used.
Multiple regressions are the best model to show the relation between the independent and
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
29/51
Page 29
the dependent variables in the study. This model provides me with best results of the
impact of governance mechanism on earning quality.
Following regression equation is formed to explain the impact of governance mechanism
on earning quality.
EQ=0+1CEO+2IND+3AUD+4SIZE+5GEN+6INV
EQ= Earning Quality
CEO= Absence of chief executive officer as chairman
IND= Board independence
AUD= Audit committee size
SIZE= Board size
GEN= Gender diversity
INV= Percentage of institutional investors
0 = constant
1,2,3,4,5,6 = Coefficients
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
30/51
Page 30
Chapter No: 4
Analysis of data
Here is the interpretation of the results of SPSS.
Model Summary
Model R
R
Square
Adjusted
R Square
Std.
Error of
the
Estimate
Change Statistics
Durbin-
Watson
R
Square
Change
F
Change df1 df2
Sig. F
Change
1 .978a .956 .867 .26950 .956 10.744 6 3 .039 1.689
a. Predictors: (Constant), does gender diversity affect earning quality of the company,
does board size of the company enhance earning quality, percentage of institutional
investors affect earning quality, absence of chief executive officer as a chairman affect
earning quality, board independence enhances the earning quality, audit committee size
affect the earning quality of the company
b. Dependent Variable: Earning Quality
This model summary describes the goodness of the model. R square represents
the effect of independent variable upon the dependent variable. Adjusted R square
represents the impact of dependent variable on the independent variable. The range of the
value of the R square and the adjusted R square lies between 0 and 1. If it shows value
nearer to 1 than it represents a good model exist. If it shows value nearer to 0 than it
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
31/51
Page 31
represents the model that exists is bad. The outcome of my result of R square and the
adjusted R square is 0.956 and 0.867 which shows a good model exists. It means under R
square the value 0.956 shows change in dependent variable which is earning quality due
to change in independent variable that was governance mechanism.
The value of adjusted R square will be lower than value of R square or it might be
equal to it. The value of adjusted R square can only be higher than the value of R square
in one condition and that is if I added some extra variables in the analysis of data. But in
our data the value of adjusted R square is lower than R square with means my data is
good no extra variables were utilized in the analysis of data.
Standard error of estimation shows the reliability of the data that is interpreted in the
SPSS. If the value of standard estimation of data is below 1 than it represents the data is
reliable. In the model summary the value of standard error is 0.26950 which is lower than
1. So it shows reliability of the data.
ANOVAb
Model Sum of Squares df Mean Square F Sig.
1 Regression 4.682 6 .780 10.744 .039a
Residual .218 3 .073
Total 4.900 9
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
32/51
Page 32
a. Predictors: (Constant), does gender diversity affect earning quality of the company,
does board size of the company enhance earning quality, percentage of institutional
investors affect earning quality, absence of chief executive officer as a chairman affect
earning quality, board independence enhances the earning quality, audit committee size
affect the earning quality of the company
b. Dependent Variable: Earning Quality
This anova table represents the measure of variance among the variable of the data.
This table measures the difference between the variables so that relationship can be
measured. In anova table the value of sig or P value must be lower than 0.05 then it
represents that the data is significant. The outcome of data is 0.039 which is lower than
0.05 which shows that model is significant and is accept as well. When the value of sig or
P value is lower than 0.05 then we reject the assumption of the null hypothesis another
aspect to see the significance of data is F value. If the F value in the annova table is
greater than 4 than data is significant. The results show 10.744 hence another proof of
significance.
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
33/51
Page 33
Coefficientsa
Model
Unstandardized
Coefficients
Standardized
Coefficients
t Sig.
95%
Confidence
Interval for B Correlations
Collinearity
Statistics
B
Std.
Error Beta
Lower
Bound
Upper
Bound
Zero-
order Partial Part Tolerance VIF
1 (Constant) -.564 1.141 -.494 .655 -4.196 3.068
board independence
enhances the earning
quality
-.049 .132 -.061 -.371 .735 -.467 .370 .131 -.209 -.045 .552 1.810
audit committee size
affect the earning
quality of the company
-.866 .199 -1.166-
4.342.023 -1.500 -.231 -.318 -.929 -.529 .205 4.869
percentage of
institutional investors
affect earning quality
.453 .183 .501 2.471 .090 -.131 1.037 .000 .819 .301 .360 2.779
absence of ceo as a
chairman affect
earning quality
.455 .172 .436 2.639 .078 -.094 1.003 .106 .836 .321 .544 1.839
does board size of the
company enhance
earning quality
.377 .222 .403 1.701 .187 -.328 1.082 -.229 .701 .207 .264 3.784
does gender diversity
affect earing quality of
the company
.763 .109 1.138 6.973 .006 .415 1.111 .561 .971 .849 .556 1.797
a. Dependent Variable: Earning
Quality
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
34/51
Page 34
Earning Quality and Board independence:
Regression Equation
EQ=0+2IND
EQ= -0.564-0.49IND
This equation shows that if 1 unit of board independence is changed it will bring
0.49 decreases in earning quality. So a negative relation exists between these two
variables.
Standard Error
If the value of standard error is below than 0.5 than the results are significant
otherwise they are insignificant. My standard error for this variable is 0.132 which means
the results are significant.
T test
If the value of t test is greater than 2 than it means the model is significant or vice
versa. The T value for this variable is 0.371 which means the model is insignificant.
Earning Quality with Audit committee size
Regression Equation
EQ=0+3AUD
EQ= -0.564-0.866AUD
This equation shows that if the size of the audit committee changes by 1 unit it will
decrease the earning quality by 0.866. It shows negative relation exist between these two
variables.
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
35/51
Page 35
Standard Error
If the value of standard error is below than 0.5 than the results are significant
otherwise they are insignificant. The result for this variable shows the value of 0.199
which means the results are significant.
T test
If the value of t test is greater than 2 than it means the model is significant or vice
versa. The T value for this variable is 4.342 which mean the model is significant.
Earning Quality with Percentage of institutional investors
Regression Equation
EQ=0+6INV
EQ= -0.564+0.453INV
This equation shows that if percentage of institutional investors changes by 1 unit it
will increase the earning quality by 0.453. It shows positive relation exists between these
two variables.
Standard Error
If the value of standard error is below than 0.5 than the results are significant
otherwise they are insignificant. The result for this variable shows the value of 0.183
which means the results are significant.
T test
If the value of t test is greater than 2 than it means the model is significant or vice
versa. The T value for this variable is 2.471 which mean the model is significant.
Earning Quality with Absence of the CEO as a chairman
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
36/51
Page 36
Regression Equation
EQ= 0+1CEO
EQ= -0.564+0.455CEO
This equation shows that if any changes come in the absence of chief executive
officer as the chairman by 1 unit it will increase the earning quality by 0.455. It shows
positive relation exists between these two variables.
Standard Error
If the value of standard error is below than 0.5 than the results are significant
otherwise they are insignificant. The result for this variable shows the value of 0.172
which means the results are significant.
T test
If the value of t test is greater than 2 than it means the model is significant or vice
versa. The T value for this variable is 2.639 which mean the model is significant.
Earning Quality with Board Size
Regression Equation
EQ= 0+4SIZE
EQ=-0.564+0.377SIZE
This equation shows that if the board size of the company changes by 1 unit it will
increase the earning quality by 0.377. It shows positive relation exists between these two
variables.
Standard Error
If the value of standard error is below than 0.5 than the results are significant
otherwise they are insignificant. The result for this variable shows the value of 0.222
which means the results are significant.
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
37/51
Page 37
T test
If the value of t test is greater than 2 than it means the model is significant or vice
versa. The T value for this variable is 1.701 which means the model is insignificant.
Earning Quality with Gender Diversity
Regression Analysis
EQ=0+5GEN
EQ=-0.564+0.763GEN
This equation shows that if the gender diversity on the composition of the board
changes by 1 unit it will increase the earning quality by 0.763. It shows positive relation
exists between these two variables.
Standard Error
If the value of standard error is below than 0.5 than the results are significant
otherwise they are insignificant. The result for this variable shows the value of 0.109
which means the results are significant.
T test
If the value of t test is greater than 2 than it means the model is significant or vice
versa. The T value for this variable is 6.973 which mean the model is significant.
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
38/51
Page 38
Chapter No: 5
CONCLUSION
This study finds out the relation between the adoption of corporate governance
mechanism and earning quality. After the detailed study a survey was conducted and the
data collected through that survey is entered into the SPSS and the results were obtained.
These results show different levels of significant of earning quality the dependent variable
with the different independent variables in the data. The results show positive and
significant relation exists among the adopting corporate governance mechanism and
enhancing earning quality. Multiple regression analysis is used to find out the impact that
the governance practices have on enhancing earning quality.
The analysis found that board independence has negative relation with the earning
quality of the data which means 1 unit change in board independence decreases earning
quality by 0.49. The value of standard error shows significant relation exists among them
and T value shows the model is insignificant.
The analysis found that audit committee size has negative relation with the earning
quality which means 1 unit change in audit committee size decreases the earning quality
by 0.866. The value of standard error shows significant relation exists among them and T
value shows the model is significant.
The analysis found that percentage of institutional investors has positive relation
with the earning quality which means 1 unit change in percentage of investors increases
the earning quality by 0.453. The value of standard error shows significant relation exists
among them and T value shows the model is significant.
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
39/51
Page 39
The analysis found that absence of chief executive officer as chairman has
positive relation with the earning quality which means 1 unit change in absence of chief
executive officer as chairman increases the earning quality by 0.455. The value of
standard error shows significant relation exists among them and T value shows the model
is significant.
The analysis found that board size has positive relation with the earning quality which
means 1 unit change in board size of the company increases the earning quality by 0.377.
The value of standard error shows significant relation exists among them and T value
shows the model is insignificant.
The analysis found that gender diversity among board composition has positive
relation with the earning quality which means 1 unit change gender diversity among
board composition increases the earning quality by 0.763. The value of standard error
shows significant relation exists among them and T value shows the model is significant.
The value of R square shows the significance of the whole model. My result shows 0.956
which is closer to 1. It means my model as a whole is significant. I have rejected the null
hypothesis because my F value is greater than 4. Finally the overall conclusion on the
analysis is that corporate governance mechanisms have significant relation in enhancing
the earning quality.
5.1 Recommendations
Governance mechanism should also be adopted by unlisted companies.
Concentrated ownerships enhance the earning quality.
Companies should use different types of approaches towards adopting governance
mechanism to enhance earning quality.
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
40/51
Page 40
References
Abed, S., Al-Attar, A., and Suwaidan, M. (2012;). Corporate Governance and Earnings
Management: Jordanian Evidence;. International Business Research; , 216-225;.
Almeida, J. E., Lima, G. A., and Lima, I. S. (2010;). CORPORATE GOVERNANCE
AND ADR EFFECTS ON EARNINGS QUALITY IN THE BRAZILIAN CAPITAL
MARKETS;. jounal of business and management; , 260-272;.
Athanasakou, V., and Olsson, P. (2012;). Earnings Quality, Corporate Governance, and
Earnings Quality;. Journal of London School of Economics; , 241-283;.
Bebchuk, L. A., and Roe, M. J. (1999;). A Theory of Path Dependence in Corporate
Ownership and Governance;. Stanford Law Review; , 127-170;.
Bistrova, J., and Lace, N. (2012;). QUALITY OF CORPORATE GOVERNANCE
SYSTEM AND QUALITY OF REPORTED EARNINGS: EVIDENCE FROM CEE
COMPANIES;. Journal of ECONOMICS AND MANAGEMENT; , 55-61.
C, S., and Vera-Muoz. (2005;). Corporate Governance Reforms: Redefined Expectations
of Audit Committee Responsibilities and Effectiveness;. Journal of Business Ethics; ,
115-127;.
Campa, D., and Donnelly, R. (2011;). The Impact of Corporate Governance and the
Adoption of IFRS on Earnings Quality in Different Legal Jurisdictions: a Comparison
between Italy and the UK;. University College Cork journals; , 377-399;.
CHEN, K. Y., and LIU, J.-L. (2010;). EARNINGS MANAGEMENT,CEO
DOMINATION,AND GROWTH OPPORTUNITIES;. International Journal of Public
Information Systems; , 43-69;.
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
41/51
Page 41
Chen, K. Y., Elder, R. J., and Hsieh, Y.-M. (2005;). Corporate Governance and Earnings
Management: The Implications of Corporate Governance Best-Practice Principles for
Taiwanese Listed Companies;. journal of business and administration; , 315-360;.
Dichev, I., Graham, J., Harvey, C. R., and Rajgopal, S. (2012;). Earnings Quality:
Evidence from the Field;. Journal of Business and Management; , 126-200;.
Hili, W., and Affes, P. H. (2012;). Corporate Boards Gender Diversity and Earnings
Persistence: The Case of French;. Global Journal of Management and Business Research;
, 51-59;.
Houqe, M. N., Zijl, P. T., Dunstan, P. K., and Karim, D. W. (2010;). The effect of IFRS
Adoption and Investor Protection on Earnings Quality around the World;.
http://ssrn.com/abstract=1536460; .
Javed, A. Y., Iqbal, R., and Hasan, L. (2006;). Corporate Governance and Firm
Performance: Evidence from Karachi Stock Exchange;. Pakistan Institute of Development
Economics; (pp. 947-964;). Islamabad;: Pakistan Institute of Development Economics;.
Lang, R. T., Becke, B. C., and Blan, R. D. (2002;). Special Study on Market Structure,
Listing Standards and Corporate Governance;. American Bar Association; (pp. 1487-
1567;). New York;: American Bar Association;.
Leuz, C. (2010;). Different Approaches to Corporate Reporting Regulation: How
Jurisdictions Differ and Why;. Accounting and Business Research; , 345-410;.
Liang, J., and Shan, Y. G. (2011;). Do Corporate Governance Mechanisms Impact on
Earnings Quality? Evidence from IFRS Adoption in the UK and Germany;. Journal of
Business and Management; , 125-165;.
Man, C.-k., and Wong, B. (2013;). Corporate Governance And Earnings Management: A
Survey Of Literature;. The Journal of Applied Business Research; , 391-418;.
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
42/51
Page 42
Moradi, M. A., and Nezami, A. (2011;). Influence of Ownership Structure on Earning
Quality in the Listed Firms of Tehran Stock Exchange;. International Journal of Business
Administration; , 146-154.
Shiri, M. M., Vaghfi, e. H., Soltani, J., and Esmaeli, M. (2012; ). Corporate Governance
and Earning Quality: Evidence from Iran; . Middle-East Journal of Scientific Research; ,
702-708;.
Sirat, H. (2012;). CORPORATE GOVERNANCE PRACTICES, SHARE OWNERSHIP
STRUCTURE, AND SIZE ON EARNING MANAGEMENT;. Journal of Economics,
Business, and Accountancy Ventura; , 145-156;.
Special Study on Market Structure, Listing Standards and Corporate Governance;.
(2002;). American Bar Association; (pp. 1487-1567;). New York;: American Bar
Association;.
Sun, j., Liu, G., and Lan, G. (2011;). Does Female Directorship on Independent Audit
Committees Constrain Earnings Management;. Journal of Business Ethics; , 369-382;.
Uadiale, O. M. (2012;). Earnings Management and Corporate Governance in Nigeria;.
Research Journal of Finance and Accounting; , 311-325.
Wang, Z., and Gulzar, M. A. (2011;). Corporate Governance Characteristics and Earnings
Management: Empirical Evidence from Chinese Listed Firms;. International Journal of
Accounting and Financial Reporting; , 133-151
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
43/51
Page 43
Appendix:
Tables:
Descriptive Statistics
Mean Std. Deviation N
Earning Quality 4.1000 .73786 10
board independence enhances the earning
quality4.2000 .91894 10
audit committee size affect the earning quality of
the company4.1000 .99443 10
percentage of institutional investors affect
earning quality4.0000 .81650 10
absence of ceo as a chairman affect earning
quality4.5000 .70711 10
does board size of the company enhance earning
quality4.2000 .78881 10
does gender diversity affect earing quality of the
company3.9000 1.10050 10
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
44/51
Page 44
Correlations
Earning
Quality
board
independence
enhances the
earning quality
auditcommittee
size affect
the earning
quality of
the
company
percentageof
institutional
investors
affect
earning
quality
absenceof ceo as
a
chairman
affect
earning
quality
doesboard size
of the
company
enhance
earning
quality
does
genderdiversity
affect
earing
quality of
the
company
Pearson
Correlation
Earning Quality 1.000 .131 -.318 .000 .106 -.229 .561
board
independence
enhances the
earning quality
.131 1.000 .219 -.148 .342 .552 .132
audit committee
size affect the
earning quality of
the company
-.318 .219 1.000 .547 -.237 .538 .416
percentage of
institutional
investors affect
earning quality
.000 -.148 .547 1.000 -.192 -.173 .247
absence of ceo as
a chairman affect
earning quality
.106 .342 -.237 -.192 1.000 .199 -.500
does board size of
the company
enhance earning
quality
-.229 .552 .538 -.173 .199 1.000 .026
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
45/51
Page 45
does gender
diversity affect
earing quality of
the company
.561 .132 .416 .247 -.500 .026 1.000
Sig. (1-tailed) Earning Quality . .359 .185 .500 .385 .262 .046
board
independence
enhances theearning quality
.359 . .272 .342 .167 .049 .358
audit committee
size affect the
earning quality of
the company
.185 .272 . .051 .255 .054 .116
percentage of
institutional
investors affect
earning quality
.500 .342 .051 . .297 .317 .245
absence of ceo as
a chairman affect
earning quality
.385 .167 .255 .297 . .291 .071
does board size of
the company
enhance earning
quality
.262 .049 .054 .317 .291 . .472
does gender
diversity affect
earing quality of
the company
.046 .358 .116 .245 .071 .472 .
N Earning Quality 10 10 10 10 10 10 10
board
independence
enhances the
earning quality
10 10 10 10 10 10 10
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
46/51
Page 46
audit committee
size affect the
earning quality of
the company
10 10 10 10 10 10 10
percentage of
institutional
investors affect
earning quality
10 10 10 10 10 10 10
absence of ceo as
a chairman affect
earning quality
10 10 10 10 10 10 10
does board size of
the company
enhance earning
quality
10 10 10 10 10 10 10
does gender
diversity affect
earing quality of
the company
10 10 10 10 10 10 10
Variables Entered/Removedb
Model Variables Entered Variables Removed Method
1 does gender diversity affect earing
quality of the company, does board
size of the company enhance earning
quality, percentage of institutional
investors affect earning quality,
absence of ceo as a chairman affect
earning quality, board independence
enhances the earning quality, audit
committee size affect the earning
quality of the companya
. Enter
a. All requested variables entered.
b. Dependent Variable: Earning Quality
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
47/51
Page 47
Coefficient Correlationsa
Model
does gender
diversity
affect
earing
quality of
the
company
does board
size of the
company
enhance
earning
quality
percentage
of
institutional
investors
affect
earning
quality
absence of
ceo as a
chairman
affect
earning
quality
board
independence
enhances the
earning
quality
audit
committee
size affect
the earning
quality of
the
company
1 Correlations does gender
diversity affect
earing quality of the
company
1.000 .258 .098 .452 -.367 -.301
does board size of
the company
enhance earning
quality
.258 1.000 .645 -.183 -.369 -.784
percentage ofinstitutional
investors affect
earning quality
.098 .645 1.000 -.198 .002 -.774
absence of ceo as a
chairman affect
earning quality
.452 -.183 -.198 1.000 -.385 .252
board independence
enhances the earning
quality
-.367 -.369 .002 -.385 1.000 .078
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
48/51
Page 48
audit committee size
affect the earning
quality of the
company
-.301 -.784 -.774 .252 .078 1.000
Covariances does gender
diversity affect
earing quality of the
company
.012 .006 .002 .009 -.005 -.007
does board size of
the company
enhance earning
quality
.006 .049 .026 -.007 -.011 -.035
percentage of
institutional
investors affect
earning quality
.002 .026 .034 -.006 4.293E-5 -.028
absence of ceo as a
chairman affect
earning quality
.009 -.007 -.006 .030 -.009 .009
board independence
enhances the earning
quality
-.005 -.011 4.293E-5 -.009 .017 .002
audit committee size
affect the earning
quality of the
company
-.007 -.035 -.028 .009 .002 .040
a. Dependent Variable: Earning Quality
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
49/51
Page 49
Residuals Statisticsa
Minimum Maximum Mean Std. Deviation N
Predicted Value 3.1241 5.2216 4.1000 .72127 10
Residual -.22159 .24732 .00000 .15560 10
Std. Predicted Value -1.353 1.555 .000 1.000 10
Std. Residual -.822 .918 .000 .577 10
a. Dependent Variable: Earning Quality
Collinearity Diagnosticsa
Model Dimension Eigenvalue
Condition
Index
Variance Proportions
(Constant)
board
independence
enhances the
earning
quality
audit
committee
size affect
the
earning
quality of
the
company
percentage
of
institutional
investors
affect
earning
quality
absence
of ceo as
a
chairman
affect
earning
quality
does
board
size of
the
company
enhance
earning
quality
does
gender
diversity
affect
earing
quality
of the
company
1 1 6.813 1.000 .00 .00 .00 .00 .00 .00 .00
2 .080 9.209 .00 .03 .01 .01 .04 .01 .19
3 .046 12.234 .00 .10 .00 .13 .01 .01 .19
4 .036 13.751 .01 .00 .12 .00 .04 .05 .15
5 .016 20.650 .04 .75 .00 .11 .03 .09 .06
6 .006 34.951 .27 .04 .27 .12 .85 .15 .16
7 .003 47.212 .68 .08 .59 .63 .03 .70 .25
a. Dependent Variable: Earning Quality
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
50/51
Page 50
Survey
Survey for adopting governance mechanism enhancing earning quality
Name:______________________________
Date:_______________________
1. Governance mechanism has significant impact on enhancing earning quality.Strongly
Disagree
Disagree Agree Strongly Agree Neither agree or
disagree
2. Absence of CEO as the chairman of the board is significant in enhancing earningquality.
Strongly
Disagree
Disagree Agree Strongly Agree Neither agree or
disagree
3. Large number of board of directors is significant in enhancing earning quality.Strongly
Disagree
Disagree Agree Strongly Agree Neither agree or
disagree
4. Non-executives directors reduce managerial conflicts among the management andinvestors to enhance earning quality.
Strongly
Disagree
Disagree Agree Strongly Agree Neither agree or
disagree
5. Audit committee size is significant in enhancing earning quality.Strongly
Disagree
Disagree Agree Strongly Agree Neither agree or
disagree
6. The number of non-executive members in the board enhances control on earningmanagement.
Strongly
Disagree
Disagree Agree Strongly Agree Neither agree or
disagree
7. Non-executive directors in board composition shows significant relationship withEarning quality
8/13/2019 Role of Corporate Governance in Implementing IFRS in Listed Companies of Pakistan
51/51
Strongly
Disagree
Disagree Agree Strongly Agree Neither agree or
disagree
8. Gender diversity among the board members affects the performance of the company.Strongly
Disagree
Disagree Agree Strongly Agree Neither agree or
disagree
9. If the firm size is larger than it is difficult to apply corporate governance mechanismsto enhance companys efficiency.
Strongly
Disagree
Disagree Agree Strongly Agree Neither agree or
disagree
10. If the CEOs holding is increasing in the company will it affect the companysperformance?
Strongly
Disagree
Disagree Agree Strongly Agree Neither agree or
disagree
11. If the percentage of institutional investors is high will it affect the earningperformance of the company?
Strongly
Disagree
Disagree Agree Strongly Agree Neither agree or
disagree
12.Does large board size composition reduces earning management in the company?Strongly
Disagree
Disagree Agree Strongly Agree Neither agree or
disagree
.
Recommended