IDEAS home Printed from https://ideas.repec.org/a/plo/pone00/0266741.html
   My bibliography  Save this article

The effect of controlling person’s illegalities on stock price returns: Evidence from Elman neural network model

Author

Listed:
  • Ming Xiao
  • Ying Guo
  • Xionghui Yang
  • Ge Li
  • Moustafa Mohamed Nazief Haggag Kotb Kholaif

Abstract

Controlling persons are the ultimate decision-makers of listed companies. Their illegalities have impacts on investors’ wealth, firm development, and capital market’s quality. Against this backdrop, we provide a quantitative analysis of the short-term stock price reaction to the criminal detention announcements of controlling persons throughout 2007–2019. We applied the Elman neural network (ENN) model into the classical event study methodology and demonstrated that the combination of them helps to improve the estimation accuracy of the stock price reaction. The results show that the stock price has a significant negative reaction to the criminal detention announcements of listed companies’ controlling persons on the announcement day, and the average reaction level is -6.67%. Additionally, the crisis communication measures of the firms could diminish the negative impact of such mandatory disclosure information on their stock price, but the effect is limited. Finally, the 31 companies in our sample cause a total loss of RMB 21.1 billion in market capitalization on the announcement day alone. The above results indicate that the impact of listed companies’ controlling persons on the capital market is tremendous, although the number of this group is small. Our work enriches the listed companies’ illegalities research and provides a reference for investors’ investment choices and follow-up decision making of regulatory authorities. It also provides some guidance for most of the researchers to further explore the application of data mining techniques in nonlinear problems.

Suggested Citation

  • Ming Xiao & Ying Guo & Xionghui Yang & Ge Li & Moustafa Mohamed Nazief Haggag Kotb Kholaif, 2022. "The effect of controlling person’s illegalities on stock price returns: Evidence from Elman neural network model," PLOS ONE, Public Library of Science, vol. 17(4), pages 1-19, April.
    • Handle: RePEc:plo:pone00:0266741
    DOI: 10.1371/journal.pone.0266741
    as

    Download full text from publisher

    File URL: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0266741
    Download Restriction: no
    File URL: https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0266741&type=printable
    Download Restriction: no
    File URL: https://libkey.io/10.1371/journal.pone.0266741?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Ebadi Jalal, Mona & Hosseini, Monireh & Karlsson, Stefan, 2016. "Forecasting incoming call volumes in call centers with recurrent Neural Networks," Journal of Business Research, Elsevier, vol. 69(11), pages 4811-4814.
    2. Karpoff, Jonathan M. & Lee, D. Scott & Martin, Gerald S., 2008. "The Cost to Firms of Cooking the Books," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(3), pages 581-611, September.
    3. Blaufus, Kay & Möhlmann, Axel & Schwäbe, Alexander N., 2019. "Stock price reactions to news about corporate tax avoidance and evasion," Journal of Economic Psychology, Elsevier, vol. 72(C), pages 278-292.
    4. Gonedes, Nicholas J., 1975. "A Note of Accounting-Based and Market-Based Estimates of Systematic Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 10(2), pages 355-365, June.
    5. Feroz, Eh & Park, K & Pastena, Vs, 1991. "The Financial And Market Effects Of The Secs Accounting And Auditing Enforcement Releases," Journal of Accounting Research, Wiley Blackwell, vol. 29, pages 107-142.
    6. Iwasaki, Ichiro, 2014. "Global financial crisis, corporate governance, and firm survival:," Journal of Comparative Economics, Elsevier, vol. 42(1), pages 178-211.
    7. Rohitash Chandra & Yixuan He, 2021. "Bayesian neural networks for stock price forecasting before and during COVID-19 pandemic," PLOS ONE, Public Library of Science, vol. 16(7), pages 1-32, July.
    8. Wang, Yuanyuan & You, Jing, 2012. "Corruption and firm growth: Evidence from China," China Economic Review, Elsevier, vol. 23(2), pages 415-433.
    9. Firth, Michael & Rui, Oliver M. & Wu, Xi, 2009. "The timeliness and consequences of disseminating public information by regulators," Journal of Accounting and Public Policy, Elsevier, vol. 28(2), pages 118-132.
    10. X. Xu & S. Zeng & C. Tam, 2012. "Stock Market’s Reaction to Disclosure of Environmental Violations: Evidence from China," Journal of Business Ethics, Springer, vol. 107(2), pages 227-237, May.
    11. Chen, Yunling & Liu, Ming & Su, Jun, 2013. "Greasing the wheels of bank lending: Evidence from private firms in China," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2533-2545.
    12. Wu, Binghui & Duan, Tingting, 2017. "The fractal feature and price trend in the gold future market at the Shanghai Futures Exchange (SFE)," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 474(C), pages 99-106.
    13. Hui Zhou & Haitao Yin, 2018. "Stock market reactions to environmental disclosures: new evidence from China," Applied Economics Letters, Taylor & Francis Journals, vol. 25(13), pages 910-913, July.
    14. M. Sinan Goktan & Robert Kieschnick & Rabih Moussawi, 2018. "Corporate Governance and Firm Survival," The Financial Review, Eastern Finance Association, vol. 53(2), pages 209-253, May.
    15. Kolanowski, Krzysztof & Świetlicka, Aleksandra & Kapela, Rafał & Pochmara, Janusz & Rybarczyk, Andrzej, 2018. "Multisensor data fusion using Elman neural networks," Applied Mathematics and Computation, Elsevier, vol. 319(C), pages 236-244.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Samuel Jebaraj Benjamin, 2019. "The Effect of Financial Constraints on Audit Fees," Capital Markets Review, Malaysian Finance Association, vol. 27(2), pages 59-87.
    2. Dan Amiram & Zahn Bozanic & James D. Cox & Quentin Dupont & Jonathan M. Karpoff & Richard Sloan, 2018. "Financial reporting fraud and other forms of misconduct: a multidisciplinary review of the literature," Review of Accounting Studies, Springer, vol. 23(2), pages 732-783, June.
    3. Laure, de Batz, 2020. "Financial crime spillovers. Does one gain to be avenged?," Journal of Economic Behavior & Organization, Elsevier, vol. 173(C), pages 196-215.
    4. Laure de Batz & Evžen Kočenda, 2024. "Financial crime and punishment: A meta‐analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 38(4), pages 1338-1398, September.
    5. Yalin Zhou & Jing Cao & Yujia Feng, 2021. "Stock Market Reactions to Pollution Information Disclosure: New Evidence from the Pollution Blacklist Program in China," Sustainability, MDPI, vol. 13(4), pages 1-13, February.
    6. Chi Keung Marco Lau & Fu Steve Yang & Zhe Zhang & Vincent K. K. Leung, 2015. "Determinants Of Innovative Activities: Evidence From Europe And Central Asia Region," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 60(01), pages 1-18.
    7. Akhtar, Shumi & Akhtar, Farida & John, Kose & Wong, Su-Wen, 2019. "Multinationals' tax evasion: A financial and governance perspective," Journal of Corporate Finance, Elsevier, vol. 57(C), pages 35-62.
    8. Fan Xia & Yunxin Hua & Bing Zhang, 2024. "Does non‐compliance pay? Environmental violations and share prices in China," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(3), pages 1886-1904, May.
    9. Aida Sijamic Wahid, 2019. "The Effects and the Mechanisms of Board Gender Diversity: Evidence from Financial Manipulation," Journal of Business Ethics, Springer, vol. 159(3), pages 705-725, October.
    10. Mehta, Mihir N. & Zhao, Wanli, 2020. "Politician Careers and SEC enforcement against financial misconduct," Journal of Accounting and Economics, Elsevier, vol. 69(2).
    11. Cristhian Mellado-Cid & Surendranath R. Jory & Thanh N. Ngo, 2018. "Real activities manipulation and firm valuation," Review of Quantitative Finance and Accounting, Springer, vol. 50(4), pages 1201-1226, May.
    12. Lars Helge Hass & Monika Tarsalewska & Feng Zhan, 2016. "Equity Incentives and Corporate Fraud in China," Journal of Business Ethics, Springer, vol. 138(4), pages 723-742, November.
    13. Liu, Baohua & Lin, Yan & Chan, Kam C. & Fung, Hung-Gay, 2018. "The dark side of rent-seeking: The impact of rent-seeking on earnings management," Journal of Business Research, Elsevier, vol. 91(C), pages 94-107.
    14. Belen Blanco & Sandip Dhole & Ferdinand A. Gul, 2023. "Financial statement comparability and accounting fraud," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(7-8), pages 1166-1205, July.
    15. Dewan, Yasir, 2019. "Corporate crime and punishment : The role of status and ideology," Other publications TiSEM 08d87b94-7449-4a1f-a3ae-0, Tilburg University, School of Economics and Management.
    16. 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).
    17. Malm, James & Adhikari, Hari P. & Krolikowski, Marcin W. & Sah, Nilesh B., 2021. "The old guard: CEO age and corporate litigation," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    18. Laure Batz, 2020. "Financial impact of regulatory sanctions on listed companies," European Journal of Law and Economics, Springer, vol. 49(2), pages 301-337, April.
    19. Nam Tran & Don O'Sullivan, 2020. "The relationship between corporate social responsibility, financial misstatements and SEC enforcement actions," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(S1), pages 1111-1147, April.
    20. Frédéric Demerens & Dorra Najar & Jean-Louis Paré & Jean Redis, 2013. "Typology of stock market offenses in France: An analysis of sanctions by the AMF since 2006," Post-Print hal-00992928, HAL.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:plo:pone00:0266741. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: plosone (email available below). General contact details of provider: https://journals.plos.org/plosone/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.