Earnings Multiples and Accounting Frauds in Relation to Corporate Governance Mechanism

Abstract

The core purpose of this research is to explore the causal influence among CG mechanism, accounting frauds and earnings multiple. For this purpose, board size, board meetings, audit committee size, audit committee meetings, and managerial ownership are taken as the measures for corporate governance mechanism. We have used ROE and ROA as the proxies for earnings multiples. We have measured accounting frauds through Modified Jones model. We have used 6 years’ data from 2013-2018 of top 15 nonfinancial firms listed in PSX based on their outstanding shares. The data we have used is panel data. We have extracted the data from Data stream and annual reports of the selected firms. We have used OLS, random effect GLS and fixed effect GLS in STATA 15 for the empirical investigation of the data. According to OLS our results show that board meetings has positive and significant impact on ROA. Whereas board size has positive yet insignificant impact on ROE and board meetings and managerial ownership have positive significant impact on ROE. But only board size has positive significant impact on Earning management.