Exploring the Links between Corporate Governance Mechanism, Accounting Conservatism, and Stock Price Crash Risk under the Complementary Role of IFRS Adoption in Pakistan

Our research aims to investigate the theoretical and empirical links between corporate governance mechanisms, accounting conservatism, and stock price crash risk under IFRS adoption in Pakistan through separate and combined analyses. For this research, 155 nonfinancial firms listed in PSX during 2007-2019 are considered. An index through PCA is constructed for the corporate governance mechanism. IFRS is a dummy variable. Accounting conservatism is measured by C-Score. Crash risk is measured through the DUVOL of stock prices. Our research finds a significant negative link between corporate governance mechanisms and IFRS. This research finds a significant negative link between the corporate governance mechanism and accounting conservatism. This research finds that the governance mechanism of firms has an insignificant role in the minimization of crash risk. Furthermore, C-Score has a significant negative link with the DUVOL of stock prices. More specifically, our research finds a significant combined link between IFRS and corporate governance mechanism that encourages the in-time anticipation of the news. This research finds that there is an insignificant combined link between corporate governance mechanism and IFRS adoption to minimize the crash risk. Our research additionally finds a significant link between IFRS and accounting conservatism to minimize the stock price crash risk. Further, our research discourages the hiding of news for inside trading by the management just because of the conflict of interest. This research encourages the fair disclosure of information to all concerned stakeholders of the firms. This research is significant for the concerned regulators, management, and investors who belong to emerging economies including Pakistan. Our research has a significant role to motivate non-adopter countries to adopt the IFRS for the transparency of the financial records