Market reaction to financial wrongdoings by alliance partners

Abstract

If an organization is caught in a financial scandal, it receives damaging and harmful penalties from external investors. Surprisingly, there is little empirical evidence on how the market responds to alliance members that may engage in Corporate Social Responsibility, in the aftermath of a financial statement fraud. Hence, the following research seeks to understand the effects of Corporate Social Responsibility activities on focal and partner firms’ market returns, by moderating the financial scandals that occurred in the U.S., particularly in the beginning of the current century. It uses a list of 130 publicly traded American alliances covering a five-year time span (2002-2006). I propose that, in an alliance context, the market reacts more negatively to focal firms perceived as good actors and thus involved in Corporate Social Responsabilty in comparison to firms that are less socially active, after the focal firm’s financial wrongdoing. In addition, by computing the cumulative average abnormal returns, the results also suggest that, within a three-day, five-day, and seven-day event window surrounding the event, focal firms present, on average, negative and decreasing cumulative abnormal returns.

Date of Award	16 Mar 2018
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Ana Milena Aranda Gutierrez (Supervisor)