Accounting standards as a moderating stimulus on the nexus between the corporate governance and Accounting conservatism: Insights from the emerging market economy

Abstract

This study aims to investigate the moderating influence of accounting standards on the
relationship between corporate governance and accounting conservatism in the financial
statements of firms in the Islamic Republic of Pakistan. A sample of the seventy most active
nonfinancial firms for the period 2009-2021 is used for hypothesis testing. The corporate
governance mechanisms used in this study cover ownership structure, and board
characteristics. Data of relevant variables have been obtained from the open door for all,
PSX, and sites of SBP. Panel data methodology has been employed to ensure the influence of
corporate governance on conservatism in presence of accounting standards used as a
moderator. The findings of the first model (direct effect) in this study indicate that managerial
ownership, Institutional ownership, board attendance, board independence, and board
diversity have a significant positive association whereas, foreign ownership has a negative
significant relationship with conservatism. The findings of the second model (moderating
effect) show that accounting standards positively moderate the nexus of corporate governance
and conservatism. The study's findings are significant for a think tank that develops policies
for the corporate sector in Pakistan to focus on governance, conservative accounting
principles, and accounting standards for discouraging agency problems and information
asymmetry.