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Return and liquidity response to fraud and sec investigations

Author

Listed:
  • Brandon C. L. Morris

    (Wright State University)

  • Jared F. Egginton

    (Boise State University)

  • Kathleen P. Fuller

    (University of Mississippi)

Abstract

This study measures the long-run costs and benefits associated with fraud and securities enforcement actions by examining the changes in market quality of firms that are investigated by the Securities and Exchange Commission for fraud. The market quality measures we test include returns, price volatility, spreads, and illiquidity. We find a significant deterioration of market quality following the market’s discovery of the misconduct. We also find that during periods in which the SEC is actively investigating the firm daily returns and price volatility improves while spreads widen and liquidity declines. Our work highlights some of the benefits and costs of having an active regulator over US securities markets.

Suggested Citation

  • Brandon C. L. Morris & Jared F. Egginton & Kathleen P. Fuller, 2019. "Return and liquidity response to fraud and sec investigations," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(2), pages 313-329, April.
    • Handle: RePEc:spr:jecfin:v:43:y:2019:i:2:d:10.1007_s12197-018-9445-y
    DOI: 10.1007/s12197-018-9445-y
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    References listed on IDEAS

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    Cited by:

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    2. Ahmed, Walid M.A., 2020. "Corruption and equity market performance: International comparative evidence," Pacific-Basin Finance Journal, Elsevier, vol. 60(C).

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    More about this item

    Keywords

    Securities enforcement; Securities and exchange commission; Liquidity; Market quality; Regulation;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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