CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The evolution of today’s modern business, many of the corporations have became owned and controlled by families and the major agency problem exist not only between management and owners in general but shareholders as well. Due to the increase in this conflict the issue of trust has taken the key position in today’s financial analysis procedure.

Earnings management is one of the examples which accountant by the will of authorities smoothen their earnings. Here a need has been assessed in the result of which concept of appropriate corporate governance emerged. In the confirmation of which Securities and Exchange Commission of Pakistan gave a code of Corporate Government in March 2002. Better governance is supposed to lead to better corporate performance by preventing the expropriation of controlling shareholders and ensuring better decision making. This expropriation may be due to the result of smoothening of earnings intention which known as earnings management. This study attempts to assess that whether corporate governance creates any impact on earnings management or not. Good governance means little expropriation of corporate resources by managers or controlling shareholders which contribute to better allocate resources or better performance.