Reputation effects and spilllovers from corporate fraud

Abstract

Implications of corporate fraud on stock market exchanges are studied by performing 60 event studies on top ten corporate frauds, defined by the highest settlement amount, since 1996. Primarily, it is found that cumulative abnormal returns (CAR) from applying standard event study methodology identify high reputational losses of the wrongdoers’ share prices of on average - 31.00% around the filing date, bolstering previous findings. Furthermore, spillover effects are identified within the industry, amounting to c. -0.50% cumulative abnormal return, on average. Those industry spillovers are statistically significant on a 1% level and manifest a specific line of mixed and few evidence. Additionally, spillover effects are observed for companies that acted fraudulent within the two years prior to each of the ten events to see whether the market has a memory. Those fraud firm spillovers are significant with 95% confidence and amount to an average -0.20% CAR, contributing new and relevant findings to the literature body. Adding more factors to the model by applying Fama and French three factors bolsters those findings and robustness is further given by an extended event window.

Date of Award	14 Mar 2018
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Jörg Stahl (Supervisor)