Financial Reporting Quality and Firm Financial Performance: The Mediating Role of Earnings Management in Pakistan’s Service Industry
DOI:
https://doi.org/10.70670/sra.v4i2.2099Keywords:
Keywords: Financial Reporting Quality, Earnings Management, Firm Financial Performance, Service Industry, Pakistan, Financial Transparency, Organizational Performance.Abstract
This study aims to examine the relationship between Financial Reporting Quality and Firm Financial Performance and to investigate the mediating role of Earnings Management in Pakistan’s service industry. Data were collected from 100 respondents working in Pakistan’s service sector through a structured questionnaire based on a 5-point Likert scale. The study employed correlation, reliability, one-way ANOVA, and regression analyses using SPSS 22 version to test the proposed hypotheses and mediation effects. The findings reveal that Financial Reporting Quality has a significant positive effect on Firm Financial Performance. The results further indicate that Financial Reporting Quality significantly influences Earnings Management, while Earnings Management also has a significant impact on Firm Financial Performance. Moreover, the mediation analysis confirms that Earnings Management partially mediates the relationship between Financial Reporting Quality and Firm Financial Performance. These findings suggest that transparent and reliable financial reporting enhances organizational performance, whereas earnings manipulation influences the strength of this relationship. The study is limited to a cross-sectional research design and focuses only on Pakistan’s service industry, which may restrict the generalizability of the findings to other sectors and regions. Additionally, the relatively small sample size may limit broader applicability; however, the statistical results remain significant and reliable. This study contributes to the existing literature by providing empirical evidence on the mediating role of Earnings Management in the relationship between Financial Reporting Quality and Firm Financial Performance within the context of Pakistan’s service industry. The study offers valuable insights for regulators, investors, auditors, and corporate managers regarding the importance of transparent financial reporting and reduced earnings manipulation for sustainable organizational growth.
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