Abstract:
This paper intends to test the nexus between the possibility of fraudulent financial
reporting and the corporate governance in Bangladesh. The content analysis of
annual reports has been performed for 125 Bangladeshi listed manufacturing
companies. In this study, we apply more than one fraud indicator models such as
Altman Z-score and Beneish M-score models to determine more accurately the
chance of fraudulent financial reporting. The chance of fraudulent financial reporting
is determined based on whether either one or both of Altman Z-score and Beneish Mscore models show red flags of potential fraud. This study found that board members
with finance or accounting backgrounds are less likely to practice in misleading
financial reporting since they may have the knowledge essential to understand
fraudulent financial reporting strategies. This result implies that qualified directors
may supervise financial reporting practices better, hence improving the quality of
financial reports. Alternatively, some other components of corporate governance,
such as board size, board independence, director ownership, gender diversity, and
auditors' independence, have insignificant impacts on fraudulent financial reporting
practices. This outcome indicates that these Bangladeshi corporate governance
components may not be as strong in improving financial reporting credibility. In the
context of Bangladesh, this is the first empirical study with management and policy
implications. To the best of the writers’ knowledge, no article yet has been worked on
the possibility of fraudulent financial reporting which calculated by multiple models
and its relationship with the corporate governance in the context of Bangladesh.
