Does Model Reflect on Reality? Exploring Beneish M Score on Selected Private Commercial Banks in Nepal

Abstract

This research explores if possible fraudulent financial statement is present in private commercial banks in Nepal. This study examines the viability of Beneish M-score model in detecting probable earning manipulation considering the sample of 16 private commercial banks including the joint ventures. The published annual report (income statement and balance sheet) of the year 2018 and 2019 of respective banks are used as a secondary source of information. This research employs Beneish M-score equation and threshold value -2.22 as keys to analysis. The result shows even four banks are engaging in income manipulation, the Beneish model cannot identify the deception on the financial statement. Though the given model is suggested for manufacturing companies, the researcher has used it to explore the Banks—this is the limitation of this research. Further investigation of these tools combined with other fraud detection models is suggested to discover financial manipulation and relationship with the stock market return.

Executive compensation, risk and performance: evidence from the USA

“…The question of whether the excessive compensation and golden parachutes paid to top level executives reflect performance has been a popular topic of discussions among the academic community, political leaders and journalists (Reddy, 2023). The academic discourse has evolved into various theorical models and shed lights on the drivers of rising executive compensation (Frydman and Saks, 2010;Gyawali, 2023). A series of empirical investigations ensued these models and produced conflicting outcomes in connection with the nexus between executive compensation and firm performance (Bussin, 2015;Bussin and Blair, 2015;Kweh et al, 2022;Nkwadi and Matemane, 2022;Sajn og and Rogozin¨ska-Pawełczyk, 2022;Mohammed et al, 2023).…”

“…Since the mid-1980s, the corporate world has witnessed significant rise in executive compensation and much debate has taken place on exploring the potential reasons behind the changing dynamic (Gyawali, 2023). Considering this background, four major economic theories have emerged to explain the continued surges in the executive pays (Bertrand and Mullainathan, 2001;Murphy and Z abojnı ´k, 2004;Kuhnen and Zwiebel, 2008;Gabaix and Landier, 2008;Tervio, 2008;Frydman and Saks, 2010;Kreilkamp et al, 2022;Gyawali, 2023).…”

“…Since the mid-1980s, the corporate world has witnessed significant rise in executive compensation and much debate has taken place on exploring the potential reasons behind the changing dynamic (Gyawali, 2023). Considering this background, four major economic theories have emerged to explain the continued surges in the executive pays (Bertrand and Mullainathan, 2001;Murphy and Z abojnı ´k, 2004;Kuhnen and Zwiebel, 2008;Gabaix and Landier, 2008;Tervio, 2008;Frydman and Saks, 2010;Kreilkamp et al, 2022;Gyawali, 2023). Firstly, the managerial rent extraction theory (MRET) relates compensation to executives' ability to skim profits from the company and manage to secure significant raise in their remuneration package in a poorly governed corporate environment (Bertrand and Mullainathan, 2001;Kuhnen and Zwiebel, 2008;Elmagrhi et al, 2020).…”

“…The third group, i.e. the theories of the provision of incentives, emphasises superior remuneration package for rewarding risk adverse executives that manage a highly risky portfolio of income sources and establishes accordingly a link between the rise in compensation since the 1980s and the concurrent raise in incentive package (Gyawali, 2023). The risk-reward dynamic of the third group of theories is contradictory to the notion of the prospect theory that considers managers as risk averse in a gain domain and, on the contrary, high risk-takers in a loss domain (Kreilkamp et al, 2022).…”

Do the same executive compensation strategies and policies fit all the firms in the banking industry? New empirical insights from the CEO pay–firm performance causal nexus

“…Following the influential theoretical tenets of agency and managerial power theories, the CEO pay–firm performance nexus has continued to be the most researched and debated in the corporate governance literature (Gyawali, 2023). The CEO pay–firm performance nexus is central to resolving agency problems in listed firms (Shin & Seo, 2011).…”