The beginning of the twenty-first century witnessed several high-profile corporate fraud scandals in the U.S. and around the world (e.g. Enron and WorldCom, Waste Management, Parmalat, etc.). These failures resulted in a significant amount of loss in the market value. Association of Certified Fraud Examiners (ACFE) defines fraud as, ' the deliberate action or falsification of the material financial facts of an entity committed by intentionally forging or omitting the facts or disclosures in the financial statements to deceive the users of financial statements purposefully'. This research is focused mainly on financial statement fraud because it is the most costly form of fraud an organization can endure. Second, the integrity of financial reporting is severely affected by the failure of a large corporation, thus shaking the trust of all the stakeholders. Third, the cost of this fraud goes beyond monetary loss and therefore has implications for capital markets. This study contributes to the literature in several ways. Previous literature on fraud-related research either completely ignored the issue of identification/partial observability of fraud or addressed it as a limitation and future research direction. The novel contribution of this study is to hand-collect a sample of firms alleged of financial statement manipulation and fraud by Securities and Exchange Commission of Pakistan (SECP) for the first time and apply the techniques bivariate probit model to control the issue of partial detection/unobservability of fraud. The advantage of the proposed method for SECP and other regulators in Pakistan is the fact that it only uses easily accessible firm-level financial variables. The model used in this study sets two equations of commission and detection simultaneously to capture the issue of incomplete detection. Previous literature on fraud-related research is lacking in addressing the phenomenon of partial detection and simultaneity of manipulation commission and detection, particularly in addressing developing economies. This study fills the literature gap by considering the strategic relationship between the firms' propensity to commit fraud and determinants of manipulation using bivariate probit estimation technique. This study has implications for the firms by assisting the efforts of an organization to detect and deter fraud. The fraud risk factors identified in this study can serve as potential opportunities for the managers and accountant to commit and conceal manipulation. These opportunities can be eliminated by incorporating proper internal controls and then directing all the efforts to implement those control measures and ensuring strict adherence to them. The result of this study also suggests that manipulators tend to overinvest. While the empirical and theoretical studies also suggest that investment has a spill-over effect between manipulators and other firms. It has implications for the capital markets. This study also offers implications for regulators and standard setters who are endeavouring to reinforce the monitoring oversight in the financial markets. Care must be exercised in generalizing the result as this study is delimited to include firm-level financial factors affecting fraud commission and detection probability excluding other interesting firm-level variables such as the characteristics of the firm's management, culture, strategy, corporate governance mechanism etc. This study has the potential to include the broader context of fraud, i.e. macro-level factors, including the institutional environment that would give more opportunities to study the role of context of developing economy.