EFFECT OF THE BOARD OF DIRECTORS ON EARNINGS MANAGEMENT WITH THE MODERATING ROLE OF FIRM SIZE

Abstract

The principal objective of this research study is to scrutinize and explore the influence of board of directors’ characteristics such as gender diversity, education diversity, nationality, board size, and board experience have an influence on EM. The population of this study includes the financial and non-financial sectors of Pakistan Stock Exchange (PSE) which includes 559 firms. The target population of this study is comprised 14 sectors of non-financial firms of Pakistan Stock Exchange which includes 369 firms. This study examined the non-financial sectors of Pakistan Stock Exchange listed companies. This study conducted on three industries, namely, Cement industry, automobiles industry and pharmaceutical industry in Pakistan. Study sample includes 17, 18 and 43 Pakistani listed non-financial companies from Cement, automobiles and Pharmaceutical sectors respectively, during the period of 2010-2020. In this study secondary data was used. Board gender diversity and foreign directors’ results are negatively significant and they play vigilant role in controlling earnings management and managers' opportunistic priorities. This result follow stewardship theory and reduce agency cost. The relationship between board education and earning management is positively significant. Board size is negatively insignificant and board experience positively insignificant. Moderating variable firm size concludes that firm size diversity has no significant effect on earning management. Firm size and gender diversity put combined significant effect on earnings management. Firm size and education diversity and firm size and foreign diversity respectively put combined positive and significant effect on earnings management. Firm size and board size and board experience respectively does not put combined significant effect on earnings management.