Corporate governance and financial reporting quality: a comparative study

Abstract

Purpose

This paper aims to investigate the impact of corporate governance on financial reporting quality (FRQ) in Pakistan and the UK.

Design/methodology/approach

In this paper, three accrual-based models are used to analyse FRQ for a sample of 1,550 firm-year observations, including 78 Pakistani firms and 77 UK firms, for the period 2009–2018.

Findings

The analysis shows that board size has a negative impact on FRQ while foreign ownership has a positive impact for Pakistani and UK firms. It also shows that board independence has a positive impact on FRQ of Pakistani firms, while board meetings frequency and audit committee independence have a negative impact. We make no such observation for UK firms. In addition, the analysis shows that board gender diversity and ownership concentration negatively affect FRQ of UK firms. This study makes no such observation for Pakistani firms.

Research limitations/implications

Due to the study’s focus on Pakistani and UK firms, the findings may not be generalizable to other developed and emerging economies.

Practical implications

The findings provide valuable insight to policymakers, regulators and investors by suggesting that the impact of board composition on FRQ of both Pakistani and UK firms is weak. The findings suggest that board size and foreign ownership are the attributes that require regulatory focus to increase FRQ. The negative impact of audit committee independence on FRQ induces rethinking among the policymakers in Pakistan and calls for fully independent audit committees.

Originality/value

To the best of the authors’ knowledge, this is the first research endeavour to compare the context of a developed and an emerging economy regarding the impact of corporate governance on FRQ. It also contributes to the governance literature by using three measures of FRQ and a comprehensive set of corporate governance attributes.

Citation

Hasan, A., Aly, D. and Hussainey, K. (2022), "Corporate governance and financial reporting quality: a comparative study", Corporate Governance, Vol. 22 No. 6, pp. 1308-1326. https://doi.org/10.1108/CG-08-2021-0298