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This case captures the experience of the newly hired investigation officer (IO) at the SECP, who crafts a front running case focused on the ethical transgressions by equity trader and KATS operator, at a famous brokerage house named Mir Ali Chaudhary Securities (MAC) Securities and three traders at DICE in Pakistan. The case outlines the whole series of investigation event that took place, from the IO identifying the smoke to all the pieces of puzzle together to form collectively evidence of front running. The case outlines and probes students to think at each stage of investigation as to how to answer the general claims that insider trading should be legalized. All these questions are viewed from the perspective of Pakistan’s regulatory environment.

The authors use a descriptive case study methodology approach.

The investigation trial held Sidney and Aslam guilty, sentencing them to imprisonment and making them pay fine to the Securities Exchange Commission of Pakistan (SECP) worth Rs 5m and Rs 1m, respectively. Likewise, the three equity traders at DICE were sentenced to imprisonment and charged a fine of Rs. 1m each.

On March 21, 2018, Mr Sidney, the equity trader, Mr Aslam, a KATS operator at MAC Securities and three equity traders at DICE Securities (Pvt.) Ltd were convicted under Securities Act (2015) and Court of law. Sidney and Aslam were alleged of tipping off advance confidential information of their clients’ order to the three equity traders at DICE, whereas the three traders at DICE were alleged of trading shares based on the tipped information in their trading account before the MAC clients’ orders were filled.

Prior evidence that financial reporting quality (FRQ) of publicly listed firms improves investment efficiency in developed markets leaves unaddressed questions of whether this relationship holds in emerging and frontier markets and what channels influence this relationship. This study aims to test the role of financial constraints faced by firms and managerial risk-taking on the association of FRQ and investment efficiency in 13,231 publicly listed firms in 24 emerging and frontier markets.

Available accounting data from 1998 to 2022 are collected for all listed firms across 41 industries in 24 countries. Causal relationships are tested using fixed-effect regression analysis, several additional tests and robustness checks are applied using alternative proxies and concerns for endogeneity are addressed using two-stage least square and system generalised method of moments analysis.

Findings show that FRQ of firms in emerging and frontier markets positively affects investment efficiency, the affirmative impact of FRQ on investment efficiency is higher when firms are facing more financial constraints and when managerial risk-taking is lower and financial constraints and risk-taking have a more pronounced impact on the link between FRQ and investment efficiency in the under-investment scenario.

These findings contribute to the growing body of evidence, shedding light on the meticulous interplay between FRQ and investment efficiency in frontier and emerging markets. Specifically, the increased financial constraints encountered by firms and a more conservative approach to managerial risk-taking emerge as crucial factors complementing this relationship.

This study aims to examine the link between financial reporting quality and investment efficiency in publicly listed firms in frontier markets, taking into account country-level investor protection. By comparing real and accrual earnings management, this paper demonstrates the context-dependent nature of the impact of financial reporting quality. It emphasises the importance of improving investor protection and reducing agency conflicts in promoting investment efficiency in frontier markets.

Accounting data from 1998 to 2020 are collected for all listed firms in six frontier market countries across 21 industries. Fixed-effect regression analysis is used to test causal relationships; several robustness checks are performed; and two-stage least squares is used to address endogeneity concerns.

Higher financial reporting quality improves investment efficiency in frontier markets. Furthermore, the positive effect is amplified when country-level investor protection in frontier markets is strong.

These findings add to the growing body of evidence showing that financial reporting quality improves investment efficiency, even in frontier markets. Furthermore, the level of investor protection within a country strengthens this relationship, particularly in firms that are prone to underinvestment.