Governance practices and interim disclosure quality: Evidence from Indian pharmaceutical and financial services firms

Abstract

The current study investigates the impact of corporate governance mechanisms on Interim Financial Reporting Quality (IFRQ) of Indian pharmaceutical and financial services companies listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). This paper uses balanced panel data and fixed-effects regression analysis to study the impact of board size, board diversity, audit unit independence, and ownership structure on IFRQ. Interim Financial Reporting Quality is measured using discretionary accruals estimated by the Modified Jones Model, a widely accepted proxy for reporting quality. Our results show that board diversity (β = 0.028, p < 0.01) and audit unit independence (β = 0.021, p < 0.05) are positively related to reporting quality, whereas the size of the board of directors is negatively related (β = –0.012, p < 0.05). There is a weak positive relationship between ownership structure and IFRQ. Furthermore, in the context of sectoral moderation analysis, we find that the governance–IFRQ association is substantially stronger for firms in financial services than for pharmaceutical firms (β = 0.018, p < 0.01), highlighting the importance of industry-specific regulatory environments. The model explains a large part of the variation in IFRQ (R² = 0.61) and shows good explanatory power. The results suggest that companies can improve the quality of interim reporting by increasing board independence and the oversight function of the audit unit, and regulators may consider sector-specific governance guidelines to improve transparency and investor confidence in emerging markets.