Corporate governance and corporate accruals: The situation in Bangladesh

Abstract

This study examines the linear correlation between discretionary accruals (corporate accruals for the purpose of this study) and corporate governance in Bangladesh. The behavior of corporate accruals is explained by corporate governance variables such as board independence, dominant personality, board size, institutional ownership, general public ownership and external auditor. A statistically significant relationship is observed between corporate accruals and general public ownership, which would indicate the existence of an agency problem between shareholders and corporate management. Corporate accruals are not dependent on corporate governance variables but rather on the mindset of corporate managers. Management is in a unique position to produce fraudulent financial statements and the frequency of managerial opportunism in corporate financial reporting in Bangladesh is very high. Corporate boards should therefore be on their guard and employ an active and proactive approach so that shareholders are provided accurate information. It is disastrous for the marginal shareholders when directors themselves exercise opportunism. An ethical, decision-making environment can replace profit-driven decision making and root out the reprehensible practices (information asymmetry) that certain businessmen like to adopt. The findings of this study will help policy planners, regulators, researchers, professional accountants, financial analysts and other interested parties to formulate their own agenda to prevent and reduce managerial opportunism in the Bangladesh corporate sector.