<b>Corporate Governance and Financial Performance in Pakistan’s Manufacturing Sector: The Moderating Role of Earnings Management</b>

This study examines the influence of corporate governance (CG) mechanisms on the financial performance of manufacturing firms in Pakistan, emphasizing the moderating effect of earnings management. It aims to determine how board characteristics impact firm performance and whether earnings manipulation changes this relationship. A quantitative design under the positivist paradigm is adopted, using secondary data from annual reports of firms listed on the Pakistan Stock Exchange. The analysis employs panel data regression through the two-step system Generalized Method of Moments (GMM) to address endogeneity concerns, focusing on the textile sector due to data availability. Findings reveal that board size, independence, and gender diversity negatively affect performance measured by Return on Assets (ROA) and Return on Equity (ROE), whereas foreign ownership has a positive effect. The presence of sustainability committees shows a minimal impact. Earnings management exerts a strong negative influence on financial performance and significantly weakens the governance-performance link. Among control variables, firm size negatively correlates with profitability, while firm age has a positive association. The study recommends maintaining an optimal board size of 7–9 members, promoting real independence instead of symbolic compliance, and ensuring merit-based gender inclusion. For regulators, enhanced enforcement, stronger audit quality, and whistleblowing mechanisms are vital to reduce earnings manipulation. This research enriches CG literature by addressing the moderating role of earnings management in an emerging market context, offering practical and theoretical insights for Pakistan’s manufacturing sector.