Financial reporting quality and share price movement-evidence from listed companies in Bangladesh

Abstract

PurposeThe purpose of this study is to examine the effect of financial reporting quality (FRQ) on share price movement (SPM) of listed companies in an emerging and developing economy – Bangladesh.Design/methodology/approachThe study analyzed 296 annual reports for the year 2015 and 2016 in examining the effect of FRQ on SPM. Ordinary least squares (OLS) regression model is used to examine the hypothesized relationship among the variables. A modified version of Lang et al. (2003) has been adopted in measuring the SPM. FRQ is measured using the qualitative characteristics approach as defined by the International Financial Reporting Standard Framework and used by Beest et al. (2009) and Braam and Beest (2013).FindingsThe study finds a positive association (though not significant statistically) between the FRQ and SPM in the country’s leading stock exchange (Dhaka stock exchange). Furthermore, the effect of enhancing quality on SPM is found to be stronger as compared to fundamental quality. Majority of the FRQ constructs demonstrate an improvement in the quality score in the year 2016 as compared to 2015 except for relevance.Research limitations/implicationsThe key limitation of the study is that it focuses only on two years (2015 and 2016) annual reports data in measuring FRQ and its effect on SPM.Originality/valueThe study uses qualitative characteristics approach in measuring the FRQ and to examine its effect on SPM using the context of an emerging and developing economy – the case of Bangladesh.