The Impact of Earnings Management and Corporate Governance on Corporate Investment Efficiency: Evidence from Pakistan Stock Exchange (NUST Business Review)

Summary

• The study uses a panel of 1,086 firm-year observations from 171 companies spanning 2012-2019 on the Pakistan Stock Exchange.p.1
• Earnings management alone does not significantly affect investment efficiency, while board gender diversity significantly improves it.p.1
• The initial panel comprised 1,354 firm-year observations over an eight-year period, 2012-2019, before outlier treatment.p.11
• Mean investment efficiency is -0.046 with a standard deviation of 0.033, suggesting most firms are not particularly efficient investors.p.12
• The regression reports a Chi-square of 174.508 on 1086 observations.p.15

Key insights

1. Earnings management has a negative but statistically insignificant relationship with investment efficiency.p.15
2. CEO duality has a negative but statistically insignificant impact on investment efficiency.p.16
3. Board gender diversity shows a positive and significant impact on investment efficiency.p.16
4. Board meeting frequency shows a negative and significant relationship with investment efficiency.p.16
5. The interaction between earnings management and audit committee independence is negatively and significantly associated with investment efficiency.p.17
6. Larger firms invest more efficiently, while leverage is negatively associated with investment efficiency.p.17
7. The study recommends emphasis on female inclusion and strengthening corporate governance in Pakistan's industrial sector.p.18