Although firms’ annual reports are supposed to provide an unbiased and accurate picture of their financial position, managers may be induced to engage in earnings management in order to circumvent expectations. Such incentives can take the shape of stock prices, management incentives, or debt covenants. The purpose of this study is to investigate the effectiveness of three attributes of corporate governance in constraining earnings management practices. These include board characteristics, audit committee characteristics, and ownership structure. Based on a sample of 120 nonfinancial firms listed on the Karachi Stock Exchange during 2003–12, we find that audit committee independence is negatively associated with earnings management, while CEO duality and institutional shareholding is positively associated with earnings management. Moreover, the effectiveness of governance mechanisms in constraining earnings management practices differs across high- and low-growth firms.

The aim of this study is to determine the impact of the quality of accounting information on the cost of capital in the firms listed on the Pakistan Stock Exchange (PSX). The study focuses on the fundamental qualitative attributes of accounting information mentioned in the Statement of Financial Accounting Concepts (SFAC) No. 8. These attributes comprise predictive value, neutrality, completeness and free from error. The cost of capital is measured using the discounted cash flow technique. Very few studies have been conducted using the discounted cash flow technique in relation to emerging stock markets, as compared to developed stock markets. Data were collected from the companies belonging to the non-financial sector of the PSX from 2001 to 2019. The regression analysis results showed that the attributes of accounting information-predictive value, neutrality, completeness and free from error-impact the cost of capital in the PSX. A systematic pattern analysis of risk-adjusted portfolio returns also revealed that these qualitative attributes are genuine risk factors and are not created by chance due to the inefficiency of the market. A policy implication of this finding is that potential investors should consider the qualitative attributes of accounting information before making their investment decisions.Contribution/ Originality: This study analyzes the impact of fundamental qualitative attributes of accounting information, mentioned in SFAC No. 8, on the cost of capital. The study is one of very few conducted in emerging markets that have used a discounted cash flow technique to measure the cost of capital.

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