Impact of Conservatism and Earnings Management on Earning Quality: Evidence from Pakistani Listed Firms

Abstract

This study examines whether accounting conservatism
(prudence) and earning management are related with improved
quality of earnings. Using a sample of 70 non-financial
Pakistani listed firms covering a 10 years period from 2008-
2017 with 700 observations. Quality of earning is measured on
the basis of Accrual quality measurement as proxy to earning
quality indicator. Basu Reverse regression approach is used to
measure conservatism (Prudence) and Modified Jones Model is
used for Earning Management. The results of the research
indicate a significant positive impact of conservatism and
earning management on quality of earnings in context of
Pakistan. This context will provide a source for shareholders,
stakeholders, controlling bodies of firms, regulators and other
concerned bodies to make decisions on the financial position of
the firm‘s on available financial reports.