Implications of Policies and Governance on Financial Sustainability in the Light of Earning Management: An Evidence from an Emerging Economy

The purpose of this study is to analyze the impact of corporate governance and policies on financial sustainability in the presence of earnings management as the moderator in an emerging economy-Pakistan. The study’s population is the manufacturing industry of Pakistan that has 25 sectors and 295 firms listed with the Pakistan stock exchange PSX. Data was collected from Thomson Reuters Datastream for all the 295 firms. Panel data analysis was carried out to examine the impact of the variables of interest. Analysis reveals that out of the two independent variables; that is, corporate governance and policies, the former has a significant impact on financial sustainability. Furthermore, in direct relation earnings management is negatively affecting the financial sustainability of the corporates and the impact is significant with the p-value of .044. Earnings management as a moderator also has a negatively significant impact on the relationship between corporate governance, policies, and financial sustainability with a p-value of .042. This study would help the government and policymakers in making sustainable policies and frameworks.