Corporate governance and financial reporting quality: a comparative study

Abstract

Purpose This paper aims to investigate the impact of corporate governance on financial reporting quality (FRQ) in Pakistan and the UK. Design/methodology/approach In this paper, three accrual-based models are used to analyse FRQ for a sample of 1,550 firm-year observations, including 78 Pakistani firms and 77 UK firms, for the period 2009–2018. Findings The analysis shows that board size has a negative impact on FRQ while foreign ownership has a positive impact for Pakistani and UK firms. It also shows that board independence has a positive impact on FRQ of Pakistani firms, while board meetings frequency and audit committee independence have a negative impact. We make no such observation for UK firms. In addition, the analysis shows that board gender diversity and ownership concentration negatively affect FRQ of UK firms. This study makes no such observation for Pakistani firms. Research limitations/implications Due to the study’s focus on Pakistani and UK firms, the findings may not be generalizable to other developed and emerging economies. Practical implications The findings provide valuable insight to policymakers, regulators and investors by suggesting that the impact of board composition on FRQ of both Pakistani and UK firms is weak. The findings suggest that board size and foreign ownership are the attributes that require regulatory focus to increase FRQ. The negative impact of audit committee independence on FRQ induces rethinking among the policymakers in Pakistan and calls for fully independent audit committees. Originality/value To the best of the authors’ knowledge, this is the first research endeavour to compare the context of a developed and an emerging economy regarding the impact of corporate governance on FRQ. It also contributes to the governance literature by using three measures of FRQ and a comprehensive set of corporate governance attributes.

Explicating the contextuality of corporate governance through ownership structure and family management: evidence from an emerging economy

“…We use panel data to estimate the models and test the established hypotheses. Panel data offer several advantages over other forms of data, including increased sample size and a clear explanation of dilemmatic models (Greene, 2018;Hasan et al, 2022). In addition, by combining both cross-sectional and time-series observations, panel data presents a more comprehensive and beneficial way to capture time varying determinants among cross sections and over time (Ciftci et al, 2019;Gujarati et al, 2012).…”

“…Pakistani firms have a family-dominated ownership structure, which could lead to significant concerns for minority shareholders, consistent with the principal-principal framework. Furthermore, Pakistan has a weak governance environment due to the absence of an effective and predictable rule of law (Hasan et al , 2022). As a result, principal–principal conflicts can emerge as a critical corporate governance concern in emerging economies such as Pakistan (Young et al , 2008).…”

Corporate governance and the choice between bank debt and public debt

“…His argument suggests that the monitoring function is delegated to the bank in the absence of a strong internal monitoring mechanism. Actually, the corporate board is responsible for monitoring the management’s actions because the board protects the information environment of the firm (Boone et al , 2007; Hasan et al , 2022). Larger boards effectively monitor the firms’ operations (Abor and Biekpe, 2007; Esa and Ghazali, 2012; Klein, 2002), lower the level of information asymmetry (Kanagaretnam et al , 2007) and decrease the information collection and monitoring costs (Cormier et al , 2010).…”

Female leadership and financial reporting quality in Egypt

“…Jonas and Blanchot, 2000) refers to financial reporting quality as a broad concept that expresses the qualitative characteristics of financial information. Accordingly, it is hard to use a direct and generally accepted measure of financial reporting quality (Hasan et al. , 2022).…”

“…Jonas and Blanchot, 2000) refers to financial reporting quality as a broad concept that expresses the qualitative characteristics of financial information. Accordingly, it is hard to use a direct and generally accepted measure of financial reporting quality (Hasan et al, 2022). Instead, many proxies were employed to conclude the quality of financial reporting, such as earnings management, financial restatements and fraud (Cohen et al, 2004).…”