Impact of Earning management on Capital Structure and Dividend Policy of Listed Companies on Pakistan Stock Exchange

Abstract

This study aimed to identify the various factors related to earning management having impact upon the capital structure of the companies and see the quantitative impact of these exogenous variables on the endogenous variable. This study was based on the balance sheets published by State Bank of Pakistan on non-financial companies listed at the Karachi Stock Exchange (KSE) from year 2010 to 2015. All non-financial companies were distributed into 13 sectors. Results indicated that coefficient was negative showing that gearing ratio was negatively affected by the return on assets. In the current crises of Karachi Stock Exchange (KSE) in Pakistan, this topic is highly subject matter of debate among investors as it is assumed that earnings management may have some critical impact upon the capital formation of the companies listed on Karachi Stock Exchange. (KSE). This study is also effort to find out the impact of earnings management on dividend payout policy in Pakistan. A set of listed Companies in Karachi Stock Exchange to analyze the relationship for the year 2010 to 2015. Dividend policy has been measured by dividend payout. Whereas earnings management has been measured by calculating discretionary accruals. Modified Cross Sectional Jones Model (1995) has been applied to data to determine the Earnings management.