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Money shouts! How effective are punishments for accounting fraud?

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  • Wang, Yang
  • Ashton, John K.
  • Jaafar, Aziz

Abstract

This study examines the impact of different punishments for Chinese accounting fraud on shareholder valuation of firms between 2007 and 2016. From an examination of both monetary and non-monetary ‘name and shame’ penalties, it is reported all punishments have a negative and significant impact on the shareholder wealth of fraudulent firms. Investors perceive punishments involving monetary penalties far more severely than non-monetary punishments used to combat accounting fraud. Stock market reactions are also sensitive to the type of fraud committed with manipulation of recognition and disclosure fraud viewed more negatively by investors than fraud related to disclosure. Information leakage to capital markets prior to the announcement of punishments is also observed. It is proposed fines have been relatively more effective, than ‘name and shame’ punishments in addressing Chinese accounting fraud during the last decade, due not least to information leakage.

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  • Wang, Yang & Ashton, John K. & Jaafar, Aziz, 2019. "Money shouts! How effective are punishments for accounting fraud?," The British Accounting Review, Elsevier, vol. 51(5).
    • Handle: RePEc:eee:bracre:v:51:y:2019:i:5:s0890838919300307
    DOI: 10.1016/j.bar.2019.02.006
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    Cited by:

    1. Md Jahidur Rahman & Hongtao Zhu, 2023. "Predicting accounting fraud using imbalanced ensemble learning classifiers – evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3455-3486, September.
    2. Li, Mingsheng & Liu, Desheng & Peng, Hongfeng & Zhang, Luxiu, 2020. "Does low synchronicity mean more or less informative prices? Evidence from an emerging market," Journal of Financial Stability, Elsevier, vol. 51(C).
    3. Wang, Yang & Ashton, John K. & Jaafar, Aziz, 2023. "Financial statement fraud, recidivism and punishment," Emerging Markets Review, Elsevier, vol. 56(C).
    4. Mark E. Lokanan & Prerna Sharma, 2023. "Two Decades of Accounting Fraud Research: The Missing Meso-Level Analysis," SAGE Open, , vol. 13(3), pages 21582440231, September.
    5. Roberto Tommasetti & Rodrigo de Oliveira Leite & Vinicius Mothé Maia & Marcelo Alvaro da Silva Macedo, 2021. "Revisiting the Accounting Fraud Components: A Bottom-Up Approach Using the Twitter Platform," SAGE Open, , vol. 11(4), pages 21582440211, November.

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    More about this item

    Keywords

    Accounting fraud; Event study; Information leakage; Punishment; Stock market reaction;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • K2 - Law and Economics - - Regulation and Business Law
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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