Essays on corporate fraud

Hatice Uzun

doi:10.17918/00010312

The first essay investigates how the market reacts to announcements of alleged or actual corporate fraud from three different perspectives. First, I analyze the impact on stock prices of such announcements by measuring abnormal returns for different types of fraud announcements at different types of announcement dates. Results show that there are negative and statistically significant market losses around the fraud announcements for firms that are accused of corporate fraud. Second, I examine how financial analysts react to the announcement of corporate fraud for fraud firms by measuring the average and cumulative abnormal forecast revision for the current year, and five-year earnings. Results show that cumulative average forecast revisions for the entire sample are negative and statistically significant for the current year, but not five-year earnings growth. These results suggest that analysts believe that the negative effects that acts of corporate fraud have on the firm's business are short-lived and will not affect future prospects. Third, the effects of corporate fraud on the competitors of the firms accused of fraud are investigated. I examine whether the effects are positive or negative on the rival firms. If rivals are expected to take advantage of the losses of the fraud firms, a positive industry effect is expected. On the other hand, if uncovered fraud reveals the possibility of other firms in the industry engaging in fraud, a negative industry effect is expected. Overall, stock price effects of corporate fraud on competitors differ by types of fraud, types of announcement dates, and firm size. In the second essay, I examine the relationship between effectiveness of internal and external monitoring in prevention of fraud. First, I investigate how characteristics of the board of directors as an internal monitoring affect the occurrence of corporate wrongdoing. Overall results suggest that board composition, board size and composition of committees are important factors to monitor management although results vary across types of corporate fraud. Second, institutional holdings are analyzed to determine its effectiveness in prevention of fraud. Results show that all institution holdings and types of institutional holdings do not affect likelihood of corporate fraud.

Essays on corporate fraud

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Essays on corporate fraud

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