Impact of leverage on earning management: Empirical evidence from the manufacturing sector of Pakistan

The current study examines the impact of leverage on earning management in the manufacturing sector of Pakistan. It selects a list of 159 non-financial firms listed at Pakistan Stock Exchange (PSE) for a period of 7 years. The study has used Modified Jones Model 1995 as proxy of earning management. Independent variable is leverage while the three control variables are growth, firm size and Return on Assets (ROA). The findings reveal that a significant positive relationship exists between leverage and earning management activities while other variables ROA and firm size are also found to be significant. However, no significant relationship is found between growth and earning management activities. Moreover, this study has discussed the relationship between earning management and discretionary accruals. The implications of the study for different stakeholders have been discussed also