The Impact of Institutional and Managerial Ownership on Distressed and Non-Distressed Firm’s Financial Performance: Mediating Effect of Real Earning Management

Abstract

Purpose: The purpose of the study is to investigate the impact of managerial and institutional ownership on corporate financial performance through real earning management. Methodology/Design: A pooled OLS regression model was developed to check the mediation effect of real earning management and tested using a sample of 221 manufacturing firms. In this study we took 184 distressed firm with 1664 observation and 36 non-distressed firm with 325 observation. The period of the study is from 2010-2019 from Pakistan Stock Exchange. Findings: The data was collected and analyzed using ordinary least square regression and mediating regression analysis. The analysis shows that managerial ownership have positively significant relationship with corporate financial performance on distressed firms but negatively associated on non-distressed firms. In the same way institutional ownership have positively associated with financial performance in non-distressed firm but negative association in distressed firms. However, real earning management play a partial mediating role between managerial ownership and financial performance and full meditation between institutional ownership and financial performance on distressed firm. On the other hand, real earning management play no mediation between managerial & institutional ownership and corporate financial performance on non-distressed firms. Implications: The study suggest that managers must maintaining a reasonably high management quota so that ownership could help companies limit earning management behavior and increase financial performance. Moreover, investors must understand part of the government strategy and its impact on the behavior of administrators when analyzing monetary data during the capital market increase.