Multi-proxy Investigation of Earnings Management under Diverse Ownership Structures in Pakistan’s Commercial Banks

Khawaja Aftab Qadir Kant; Attaullah Shah

doi:10.32350.aar.61.02

Authors

Khawaja Aftab Qadir Kant University of Azad Jammu and Kashmir https://orcid.org/0000-0003-3849-9401
Attaullah Shah Institute of Management Sciences Peshawar https://orcid.org/0000-0001-6991-3834

DOI:

https://doi.org/10.32350.aar.61.02

Keywords:

ownership structure, institutional ownership, loan loss provisions, frequency of small positive net income, earnings management

Abstract

The current study empirically examined the effect of government, institutional, and foreign ownership on earnings management (EM) in Pakistan’s commercial banking sector. A panel dataset, covering scheduled commercial banks listed on the Pakistan Stock Exchange (PSX) from 2005–2023, was analysed using Pooled Ordinary Least Squares (Pooled OLS), fixed-effects, random-effects, and logistic random-effects models. The current study measured EM using proxies of loan loss provisions (LLP), securities gains and losses, and the frequency of small positive net income (SPNI). Furthermore, the research evaluated how ownership structures function as monitoring mechanisms to constrain specific forms of opportunistic managerial behaviours. The results indicated that institutional ownership is significantly associated with the two proxies of EM, that is, LLP and securities gains and losses. In contrast, government and foreign ownership exhibited a significant relationship only with the proxy capturing the SPNI. The findings suggested that the relationship between ownership structures and EM is sensitive to the choice of EM proxy. The study contributed to the corporate governance (CG) literature by highlighting the proxy-sensitive nature of ownership-based monitoring. Moreover, the study also provided practical insights for regulators and policymakers to design more targeted and effective CG frameworks within the banking sector.

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Author Biographies

Khawaja Aftab Qadir Kant, University of Azad Jammu and Kashmir

Assistant Professor, Department of Management

Attaullah Shah, Institute of Management Sciences Peshawar

Tenured Professor, Institute of Management Sciences, Peshawar, Pakistan

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