Is Pakistan's Financial Distress Guilty of Accounting Misrepresentation? A Manager's Mediating Role Due to Overconfidence

Abstract

This study's main goal is to determine the connection between accounting misrepresentation, managerial overconfidence, and financial distress among managers. Research indicates that there is a considerable correlation between financial distress and accounting misrepresentation. This problem has two aspects. Firstly, the management is under pressure to show the business's performance anytime there is financial trouble, but in reality, the business's performance deteriorates as a result of the financial distress. Stated differently, managers tend to manipulate their financial records at times of high uncertainty in order to win over the trust of their stakeholders and shareholders. Finally, the possibility of accounting fraud materializes if the firm's assessments, which are intended to avert charges of incapacity, are not met. A panel data regression model will be utilized to perform an empirical analysis of the hypothesis. For this study, panel data regression analysis was selected because it provides thorough insights into both cross-sectional and time-series data. The dataset includes data from 30 Pakistani companies that are listed on the Pakistan Stock Exchange, selected to represent a sample of the country's economy between 2010 and 2022. The study lays the groundwork for future investigations by recommending the use of corporate governance to control financial distress, managerial overconfidence, and accounting misstatement.