Abstract

As an emergent economy, Bangladesh is trying to develop a capital market; but the share prices in  Bangladesh  are  widely  believed  to  be  artificially  designed  and manipulated. It   is   necessary   to   get   back   the   public   confidence   back   in   the market. Without analyzing the factual scenario  would  not  be  feasible.  This study empirically   examines   the   allegations   regarding   insider   trading   and   earnings management in Bangladesh. This is descriptive research with a limited focus on quantitative analysis based on both primary and  secondary  information. The respondents perceive the rules  preventing insider  trading  and  earnings  management  in  Bangladesh to  be inadequate,  and companies  are  not  taking  sufficient  measures  to  prohibit  insiders  from  making  a profit/avoid  a  loss  at  the  cost  of  general  investors.  These empirical  findings were tested with two different models, Jones ModelandBeneish M Score, and the outcome supports that earnings management is prevalent in Bangladesh. This research will be helpful for managers and financial regulatory bodies to ensure better fiduciary  responsibility  of  the  key  employees  towards  the  general  investors. Awareness that  insider  trading  is  happening  amid  inadequate  legal  and  regulatory systems can remove a significant obstacle to creating an efficient market.

Keywords:  Insider trading, Earnings management, Generally accepted accounting principles (GAAP), Sarbanes and Oxley act (SOX), Nonpublic information