INFLUENCE OF MARKET POWER AND MARKET COMPETITION ON EARNINGS MANAGEMENT: EVIDENCE FROM ACCRUAL BASED ACTIVITIES IN FOOD INDUSTRY

Abstract

This study aims to provide guidance to the investors and managers for making prudent and informed investment decisions by developing an understanding about the influence of market power and market competition on the earnings management particularly in the food industry of Pakistan. It provides insights on the likelihood of discretionary accruals applied by the firm’s management in order to accomplish the annual objectives and make the firm’s image better from investors’ point of view. The study employs panel regression analysis along with two models of fixed and random effects to evaluate the impact of market power and market competition on the earnings management on the dataset of 17 publicly traded Food companies of Pakistan over the period from 2009 to 2018. The findings suggest that there is a substantial positive impact of market power on the discretionary accruals whereas a substantial negative relationship found between the market competition and discretionary accruals for food industry of Pakistan. This is to the best of our knowledge, first of its kind endeavor—particularly for the food industry and provides a good piece of firsthand informative material for managers and investors to perceive the nexus of market power, competition versus earnings management in case of Pakistan.