Does earnings management mediate the impact of financial policies on market value of firms? A comparative study of China and Pakistan

Muhammad Rizwan Kamran, Zheng Zhao, Haji Suleman Ali and Fiza Sabir
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Muhammad Rizwan Kamran: University of Science and Technology of China, No. 96, JinZhai Road Baohe District, Hefei, Anhui 230026, P. R. China
Zheng Zhao: University of Science and Technology of China, No. 96, JinZhai Road Baohe District, Hefei, Anhui 230026, P. R. China
Haji Suleman Ali: University of Science and Technology of China, No. 96, JinZhai Road Baohe District, Hefei, Anhui 230026, P. R. China
Fiza Sabir: Government College University Faisalabad, Allama Iqbal Road, Faisalabad, Punajab, Pakistan

International Journal of Financial Engineering (IJFE), 2018, vol. 05, issue 01, 1-22

Abstract: The study adds new mechanism of earnings management which explores the mediation between financial policies and market value of firms. A comparative study conducted on manufacturing sectors in which sample of 857 companies for China and 150 companies for Pakistanis taken from lists of Stock Exchanges during the period 2012 to 2016. Discretionary accruals have been calculated using the modified Jones Model (1995) and finally Panel analysis was used to analyze the data. Result discloses that in both countries, managers’ Earning Management practices could significantly mediate between these financial policies and firm’s value as measured by Tobin’s Q and stock return. This is the first empirical evidence that make available importance of financial policies which could efficiently influenced by earnings management and ultimately influences the firm’s performance.

Keywords: Free cash flow; financial leverage; agency cost; earning management; market value (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1142/S2424786318500068

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