Abstract:
The main objective of this study is to investigate the direct as well as moderating impact of
Earnings Management and Corporate Governance on capital structure on listed cement firms in
Pakistan.
Methodology & Design
The study was quantitative explanatory, causal and longitudinal in nature. Data was collected from
annual reports of listed cement firms in Pakistan covering the period of 2010-2022. Panel data
analysis was used to analyze and conclude the results. Three models for panel analysis employed
namely pooled regression, fixed effect and random effect model to draw conclusions upon the data
obtained.
Findings
Findings suggest that Earning Management has significant impact on total debt and short-term
debt ratio while insignificant and negative on long term debt ratio. Board size has significant
impact on total and long-term debt ratio while insignificant on short term debt ratio. Findings
further revealed the significance of board independence on total and long-term debt ratio while
insignificant on short term debt ratio. Additionally, the results concluded the significance of board
size and board independence as a moderator among earning management and capital structure
whereas board independence has insignificant impact as a moderator among earning managements
and short-term debt ratio.
Limitations
Study was only limited on 16 listed cement firms in Pakistan. And only two indicators namely
board size and board independence were included in the study as the measure of corporate
governance. Other variables comprising corporate governance could not be included in the
research framework. Data was only obtained from 13 years from 2010 till 2022.
Recommendations
The managers of cement industry firms as well those who are involved in the practices of earning
management are recommended to play around target capital structure by ensuring proper
governance checks to enhance the transparency and validity of reported financials.
