Lahore School of Economics

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Corporate Governance and Financial Reporting Quality in Pakistan

Muhammad Arshad Hasan, Lahore School of Economics, Pakistan
Dr. Doaa Aly, University of Gloucestershire, United Kingdom

Financial statements are the principal medium used by the firms to communicate with the capital market participants who need to believe in the quality of information provided in these statements to make their economic decisions. Corporate governance is the mechanism that ensures the quality and improves the transparency in financial reporting. Board composition and ownership structure are the major instruments of the corporate governance mechanism. The purpose of this study is to examine the impact of these corporate governance mechanisms on the quality of financial reporting in Pakistan. A sample of 50 companies from all sectors of the economy listed on the Karachi Stock Exchange (KSE) is drawn, to be studied for a period of five years from 2008 to 2012. The average of the two measures, Collins and Kothari (1989) and McNichols (2002), is used as a proxy for financial reporting quality. The empirical results show that the Pakistani firms are characterized by the larger board size, the lesser board independence and the higher level of ownership concentration and institutional ownership. However, the impact of these corporate governance attributes on the quality of financial reporting has shown mixed results. The institutional ownership has revealed significant positive relationship, whereas the board size, board independence and ownership concentration are irrelevant to the quality of accounting information. As far as the firms’ characteristics are concerned, the firm size has significant negative, while firm leverage and growth opportunities have no influence on the quality of financial reports in Pakistan.


Mr. Arshad Hasan is Chief Financial Officer and Assistant Professor of Accounting at the Lahore School of Economics. He is an associate member of the Institute of Chartered Accountants of Pakistan (ICAP) and Institute of Cost & Management Accountants of Pakistan (ICMAP). Mr. Hasan has over 15 years of diversified experience of the Financial Operations and Management. Before joining Lahore school, he has worked with National Database and Registration Authority, Prime TV Channel and S.M. Masood & Company Chartered Accountant. Areas of interest include Financial Reporting, Corporate Governance, Tax Planning, Risk Management and Project Appraisal.


Dr. Doaa Aly is Senior Lecturer in Accounting at the University of Gloucestershire. She has passed the CPA exam in USA, and was awarded her PhD and a research diploma from Hull University. Doaa’s research interest is in accounting reporting and disclosure. In particular, she is interested in investor relations, corporate governance and auditing. She is a member of the Investor Relations Society in London and a member of the British Accounting Association. She has worked in different international educational institutions such as Hull University, the Centre for Adult and Continuing Education, The American University in Cairo and Faculty of Becker Professional Review.

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posted by S A J Shirazi @ 5/30/2014 05:04:00 PM,

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