Audit Committee Effectiveness and Earnings Management in Pakistani Banks

Abstract

Commercial banks are the core banking institutions in Pakistan, contributing to the economy through capital mobilization. The research study examines the audit committee significance in curtailing earnings management activities in this important sector. The impact of size, independence, and meeting frequency of the audit committee is analysed in relation to earnings management practices. The study measures earnings management through discretionary loan loss provisions. The panel data set, from the years 2005 to 2023, is obtained from those scheduled Pakistani commercial banks which are listed on Pakistan Stock Exchange. The findings indicate that committees with a high degree of independence, and those which meet frequently, tend to control discretionary provisioning. In contrast, large committees are not found effective to curtail earnings management. These findings suggest that regulators and banks may enhance the integrity and faithfulness of financial reporting by emphasising on the independence of audit committee and by ensuring suitable frequency of its meetings.

Conflict of Interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Funding

The research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors.

Data Fabrication/Falsification Statement

The author(s) declare that no data have been fabricated, falsified, or manipulated in this study.

Participant Consent

This study is based on secondary data obtained from publicly available sources and did not involve any human participants. Therefore, no participant consent was required, and all data were used in accordance with ethical standards for secondary data research.

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