The Nexus Between Corporate Governance and Financial Reporting for Firms Listed in Pakistan Stock Exchange

Abstract

This study investigates the relationship between corporate governance mechanisms, including CEO duality, board size, board independence, and audit committee independence, and financial reporting quality (FRQ) in the sugar manufacturing industry, utilizing a quantitative approach with secondary data. The research focuses on four key governance variables: audit committee independence, board size, board independence, and CEO duality. Drawing upon Resource Dependence Theory, Agency Theory, and Stewardship Theory, the study aims to elucidate how these governance dimensions influence the quality of financial reports. Data was collected from 10 out of 20 firms listed on the stock exchange for the period from 2010 to 2020. Essential statistical tests were employed to analyze the data, including correlation and regression analyses, to test the hypotheses regarding the relationships between corporate governance factors and FRQ. The results indicate a positive association between all governance variables and financial reporting quality, with audit committee independence emerging as the most significant contributor. The findings underscore the importance of robust corporate governance frameworks in enhancing financial reporting transparency and accountability. The study recommends that organizations prioritize the independence of audit committees and ensure a balanced board composition to improve FRQ. These recommendations hold significant implications for investors and stakeholders who rely on accurate financial information for decision-making. Finally, the research contributes to the existing literature by demonstrating the critical role of corporate governance in promoting high-quality financial reporting. Future studies should explore the dynamics of these relationships in different industry contexts and examine additional governance factors that may impact FRQ.