A Sectoral Perspective for Unveiling Earnings Manipulation: Evidence from Pakistani Non-Financial Firms

Faiza Saleem (faizasaleem2020@gmail.com), Farhan Shahzad and Kamran Ahmed
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Faiza Saleem: Graduate School of Business, Universiti Sains, Malaysia
Farhan Shahzad: Department of Management Sciences, University of Wah, Wah Cantt, Pakistan
Kamran Ahmed: Department of Management Sciences, University of Wah, Wah Cantt, Pakistan

Audit and Accounting Review, 2024, vol. 4, issue 1, 81-100

Abstract: The major issue with the financial statement is earnings management (EM). The problem has a long history of documentation in accounting theory and practice. Researchers have employed a variety of models to identify earnings manipulation (EMN) in different economies. However, the Pakistani setting has been the focus of very few studies on this issue. The current study is an attempt to determine whether EMN exists in any of Pakistan's listed non-financial sectors. The study employed data collected from seven primary industries listed on the Pakistan Stock Exchange (PSX) between 2012 and 2019. These industries included cement, chemical, food, oil and gas, manufacturing, sugar, and textile. The study utilized Beneish's (1999) M-Score Model (MSM) to identify the existence of EM. According to the findings, 46% of the Pakistani non-financial companies listed on PSX were engaged in EM. Moreover, the sample chosen also appeared suitable for use with Beneish’s MSM. The conclusion indicated that MSM can be successfully used by businesses to determine EMN. The results can be used by bankers and investors to identify the instances of EMN in financial statements. Moreover, the results can also be used to improve the caliber of financial reporting. Academics and professionals interested in predicting future profits should also take note of the outcomes.

Keywords: earnings management (EM); earnings manipulation (EMN); financial statement; investors; M Score model; non-financial firms (search for similar items in EconPapers)
Date: 2024
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