Navigating Risk and Performance through Earnings Management: The Double-Edged Sword

This study emphasizes assessing the impact of earnings management on both the risk and performance of textile sector companies operating in Pakistan. Spanning the tenure from 2016 to 2021, the present research work uses the data of 148 companies operating in the textile sector of Pakistan and applies a two-step Generalized Method of Moments (GMM) to comprehensively analyze the intricate association between earnings management, firm risk, and performance. The study's findings indicated a significant influence of earnings management on firm risk, suggesting that the manipulation of financial outcomes directly correlates with increased risk within these textile sector firms. The research established a noteworthy relationship between the company’s performance, management practices, and earnings. In essence, the present research contributed towards valuable cognizance of the dynamics of earnings management of the Pakistan textile sector. The study emphasized the significance of establishing ethical financial reporting practices for long-term sustainability and stakeholder confidence in the businesses.