Does Earnings Management Strengthens Or Weakens The Relationship Between Financial Policies And Firm's Performance?A Comparative Analysis Of China And Pakistan

At a company it is incredible to have a successful performance without obtainable,logical and advanced financial policies.An organization's performance must be measured and analyzed,based on adequate financial management system.The study adds new mechanism of earnings management.The main objective of this study is to determine further insight whether earnings management strengthens or weakens the relationship between financial policies and firm's performance.It also inspects the direct association of financial policy(free cash flow,financial leverage and agency cost)on firm performance.A comparative study conducted on manufacturing sectors in which sample of 857 companies for China and 150 companies for Pakistanis taken from lists of Stock Exchanges during the period 2012 to 2016.Discretionary accruals have been calculated using the modified Jones Model(1995)and finally descriptive analysis was used to analyze the data.Result discloses that in both countries,the relationship between free cash flow,financial leverage,agency cost and firm's performance significantly depends on earnings management and it is also indicates that managers' Earning Management practices could strengthen the relationship between these financial policies and firm performance as measured by return on equity,return on assets,Tobin's Q and stock return.This is the first empirical evidence which makes available importance of financial policies and could efficiently influence by earnings management and ultimately influences the firm's performance.Distinctively,it presents constructive insight into manufacturing sector in which performance is highly determined.