Abstract

This study investigates the impact of corporate governance index and earnings management on firms’ performance and makes a comparative analysis of selected Islamic and conventional financial institutions in Pakistan for the period of 2005-2015. Data of 20 KSE listed Islamic financial institutions (i.e. a few Islamic banks and mostly muḍārabah companies) and 35 KSE listed conventional financial institutions (i.e. conventional banks, mutual funds, insurance companies and investment companies) have been used for analysis. The fixed effect model and random effect model have been used for analysis. The study finds that corporate governance structure of conventional financial institutions is sound as compared to Islamic financial institutions. The study also concluded that manipulation for earnings management is less in Islamic financial institutions as compared to conventional financial institutions in Pakistan. Therefore, it does not affect firm performance of Islamic financial institutions whereas the results of conventional financial institutions indicate that manipulation of earnings management has an impact on their performance. Results of this study suggest that compliance of corporate governance practices is equally significant for both Islamic and conventional financial institutions.

Keywords

Corporate Governance Index; Earnings Management; Islamic Financial Institutions; Fixed Effect Model; Pakistan.