THE INFLUENCE OF CORPORATE GOVERNANCE ON ACCOUNTING CONSERVATISM IN TOP NON-FINANCIAL FIRMS OF PSX: THE MODERATING ROLE OF AUDIT QUALITY

Abstract

This paper is based on agency theory which describes the separation of shareholders and managers and generates asymmetrical information that flows towards unfavorable consequences. In this regard, corporate governance executes its role as a forensic tool to monitor and control the behavior of opportunistic managers and consequently develops the trust of shareholders regarding financial reports. This study explores the direct and moderating influence of corporate governance on accounting conservatism. The sample non-financial firms are 70 out of 100 largest firms of PSX for the period 2010-2019. Regression is perused to test the formulated hypotheses. The findings of the first model indicate that CG attributes including BI, BGD, BActi, ISO and InsidSO have a positive while BCR has a negative influence on accounting conservatism. However, BS, FSO and SOC have shown no influence. The findings of the second model indicate that audit quality is positively moderating the nexus between CGI and conservatism. The findings of the study are significant for a policy think tank in the corporate sector of Pakistan.