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Corporate Frauds, Information Asymmetry and Stock Market Reaction

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  • Sohail Rizwan

    (PhD Candidate, Department of Management and Social Sciences, Capital University of Science & Technology, Islamabad, Punjab, Pakistan.)

Abstract

Corporate financial frauds have shaken the investors’ trust in the credibility of financial reports. Given the significance of the association between the quality of governance structure and reliability of financial reporting mechanism, the study evaluates this relation to evidence whether firms accused of financial misconduct improve their credibility. Applying a sample of 63 firms involved in violations of Securities and Exchange Commission of Pakistan (SECP) rules, the study affirms a positive relation between fraud disclosure and successive improvements in governance structure. The study further notices a positive relation between the buy-and-hold abnormal returns and the intensity of increase in outside director percentage after three years of fraud detection. These empirical assertions extend the understanding of the aftereffects of manipulating financial reports. They would be handful to the regulators debating corporate governance rules, to the management when crafting policies to reinstate investors’ trust after fraud revelation, and to the investors while deciding on future investments in these securities.

Suggested Citation

  • Sohail Rizwan, 2019. "Corporate Frauds, Information Asymmetry and Stock Market Reaction," Global Regional Review, Humanity Only, vol. 4(2), pages 126-133, June.
    • Handle: RePEc:aaw:grrjrn:v:4:y:2019:i:2:p:126-133
    DOI: 10.31703/grr.2019(IV-II).14
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    More about this item

    Keywords

    Corporate Frauds; Corporate Governance; Concentrated Ownership Credible Financial; Reporting; Investors’ Trust; Agency Costs;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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