Corporate governance and financial reporting quality: a comparative study

Hasan, Arshad, Aly, Doaa A ORCID: 0000-0002-2037-6879 and Hussainey, Khaled (2022) Corporate governance and financial reporting quality: a comparative study. Corporate Governance: The International Journal of Business in Society, 22 (6). pp. 1308-1326. doi:10.1108/CG-08-2021-0298

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This paper aims to investigate the impact of corporate governance on financial reporting quality (FRQ) in Pakistan and the UK. 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. 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. Due to the study’s focus on Pakistani and UK firms, the findings may not be generalizable to other developed and emerging economies. 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. 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.

Item Type: Article
Article Type: Article
Uncontrolled Keywords: Corporate governance, Board composition; Audit committees; Ownership structure; Financial reporting quality
Subjects: H Social Sciences > HG Finance > HG1501 Banking > HG1706 Accounting. Bookkeeping
H Social Sciences > HG Finance > HG4001 Finance management. Business finance
Divisions: Schools and Research Institutes > School of Business, Computing and Social Sciences
Research Priority Areas: Applied Business & Technology
Depositing User: Susan Turner
Date Deposited: 11 May 2022 15:54
Last Modified: 30 Apr 2024 12:35

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