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Effects of Illegal Behavior on the Financial Performance of US Banking Institutions

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Abstract

This study investigates whether financial performance is affected by corporate violations of laws and regulations. In a sample of 128 publicly traded banks that were subject to enforcement actions by US regulatory authorities over a 20-year period, we observed a significant negative market reaction pursuant to the violations. However, the market reaction did not vary meaningfully in accordance with the severity or repetitiveness of the violation. The results of this study are in conformity with previous research on industries other than banking, notably with regard to negative market reaction. This confirms that shareholders in the banking industry react in a manner considerably similar to their counterparts in other industries. Copyright Springer Science+Business Media B.V. 2013

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  • Mohamad Zeidan, 2013. "Effects of Illegal Behavior on the Financial Performance of US Banking Institutions," Journal of Business Ethics, Springer, vol. 112(2), pages 313-324, January.
    • Handle: RePEc:kap:jbuset:v:112:y:2013:i:2:p:313-324
    DOI: 10.1007/s10551-012-1253-2
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    References listed on IDEAS

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    Cited by:

    1. John Pereira & Irma Malafronte & Ghulam Sorwar & Mohamed Nurullah, 2019. "Enforcement Actions, Market Movement and Depositors’ Reaction: Evidence from the US Banking System," Journal of Financial Services Research, Springer;Western Finance Association, vol. 55(2), pages 143-165, June.
    2. Del Gaudio, Belinda L. & Salerno, Dario & Sampagnaro, Gabriele & Verdoliva, Vincenzo, 2022. "Misconduct risk in banking services: Does a propensity to be sanctioned exist?," International Review of Financial Analysis, Elsevier, vol. 81(C).
    3. Doan, Trang & Iskandar-Datta, Mai, 2020. "Are female top executives more risk-averse or more ethical? Evidence from corporate cash holdings policy," Journal of Empirical Finance, Elsevier, vol. 55(C), pages 161-176.
    4. 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).
    5. Laure Batz, 2023. "Financial market enforcement in France," European Journal of Law and Economics, Springer, vol. 55(3), pages 409-468, June.
    6. Meijui Sun & Ming-Chang Huang, 2022. "Does CSR reputation mitigate the impact of corporate social irresponsibility?," Asian Business & Management, Palgrave Macmillan, vol. 21(2), pages 261-285, April.
    7. Maite Cubas-Díaz & Miguel Ángel Martínez Sedano, 2018. "Do Credit Ratings Take into Account the Sustainability Performance of Companies?," Sustainability, MDPI, vol. 10(11), pages 1-24, November.
    8. Chanhoo Song & Seung Hun Han, 2017. "Stock Market Reaction to Corporate Crime: Evidence from South Korea," Journal of Business Ethics, Springer, vol. 143(2), pages 323-351, June.

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