Violation of reporting regulations is creating scope of dodging the disclosure of useful information that helps people concerned make investment and credit decisions.
The observation was made at an international conference on 'Accounting for Capital Market Governance' in Dhaka Sunday, with experts blaming a nexus of insider-trading for various manipulative activities in the capital market.
They find the disclosure regime, to some extent, biased towards insiders who trade in information and "expropriate external shareholders".
To overcome the crisis, the seminar highlighted the urgency of strengthening the surveillance activities by the regulatory authorities, monitoring transactions by insiders and reform of laws and rules to prosecute insider-trading rackets.
"The stock markets experienced two major crises, and in booth cases a large number of external shareholders and creditors were expropriated by insiders," said Dr. Mizanur Rahman of Dhaka University presenting the keynote on the topic.
"Separation of ownership from management becomes blurred due to weak enforcement of laws and dominance of family control over a company," the professor noted in the paper.
Dr Mizan defines that controlling shareholders and management constitute the insiders. And such insiders trade in information and expropriate external shareholders in an environment where legal protection is very weak for the general investors.
"Ownership concentration reduces corporate disclosure and worsens information problems," said the professor, who teaches Accounting and Information Systems.
Quality of audit firms also matters in both transparency and quality of annual reports.
"Decision relevance of published annual reports is thus very poor. Overpricing of IPOs and right shares is related to this poor quality of financial disclosure," he told the meet.
The Department of Accounting and Information System (DAIS) of the University of Dhaka organized the conference in association with Emerging Credit Rating Ltd and Accounting for Capital Market Development, a research project of the University Grants Commission of Bangladesh, and the World Bank.
A large number of participants, mainly academics, researchers, stock-market experts, bankers, students and representatives from various government and development agencies attended the daylong conference on the crucial field of national economy that had witnessed recurrent scam and crash.
Held at the conference hall of the DU Faculty of Business Studies, the inaugural session of the conference was addressed, among others, by Chairman of the Department Prof Mamtazuddin Ahmed, Dr Baqui Khalily, Executive Director of the Institute of Microfinance, and Dr Jamaluddin Ahmed, Director, Emerging Credit Rating Ltd. Dr. Jamal also presented a keynote paper.
Jamaluddin, also a former president of the Institute of Chartered Accountants of Bangladesh, criticized audit firms for not following ethical norms and highlighted the urgency of immediate introduction of Financial Reporting Act (FRA) as well as formation of Financial Reporting Council (FRC) to oversee the accounting profession.
These twin legal tools, he expressed the hope, would improve the situation.
In his paper 'Watching the Watchdogs: The Political Economy of Public Accounting Oversight' Jamaluddin showed how principle-based regulation of public accounting profession turned into rule-based, resulting from numerous accounting scandals that led to economic recession.
He called for immediate implementation of public accounting-oversight system in Bangladesh.
The accounting specialist also stressed the need for imposing punishment for failing to detect accounting and financial scandals.
If the 1996 share-market manipulators had been punished, the 2010 scam would not have happened, he told his audience.
"If we don't punish the perpetrators now, it may lead to another scam in a bigger way," said the chartered accountant.
He also focused on the need for introducing third-party auditing agency having revenue amounting to more than Tk 30 million.
The central bank and the Bangladesh Securities and Exchange Commission (BSEC) were urged to evolve methodology for evaluation of public accounting firms.
mzrbd@yahoo.com
Insiders withhold information to rob external shareholders
FE Report | Published: January 19, 2015 00:00:00 | Updated: November 30, 2026 06:01:00
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