Financial Performance of Banking Industry of Pakistan: The Role of Corporate Governance Index and Earnings Management Practices

Abstract

This study investigated the impact of corporate governance index and earning management on firm performance by considering the financial sector of Pakistan. Methods and Materials: Generalized method of movement (GMM) is applied for the analysis of corporate governance index, loan loss provision, non-performing loans, borrowings from financial institutions and book value of equity to return on assets. The time period considered for the analysis starts from 2005-2015 considering entire population of banking industry of Pakistan. Results: All variables show significant results except loan loss provision. Whereas, the results show a negative coefficient for loan loss provision which means that increase in provisions adversely affect the profitability. Conclusion: Analysis of this study, clinches that considered variables do contribute a significant impact on financial performance of banking industry of Pakistan. Non-performing loans does not create an impact on firm performance which shows that firms create this account just for the tax reasons