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Stock market reactions to announced corporate illegalities

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Abstract

Extending the work of Davidson and Worrell (1988), we further investigate the stock market's reaction to announced corporate illegalities. We examine a sample of 535 announcements of corporate crime and obtain an overall insignificant stock market reaction. However, when the sample is divided by type of crime, we find that the stock market reacts significantly to announcements of bribery, tax evasion, and violations of government contracts. We also find a significantly negative reaction to announcements of corporate crime when the company had been previously accused of other illegal activity. For companies accused of crime in the 1970s, 51% of them were accused again in the 1980s.

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Authors and Affiliations

  1. Finance Department, Southern Illinois University, 62901, Carbondale, IL, USA

    Wallace N. Davidson III, Dan L. Worrell & Chun I. Lee

Authors
  1. Wallace N. Davidson III
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  2. Dan L. Worrell
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  3. Chun I. Lee
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Additional information

Wallace N. Davidson III is currently the Henry Rehn Research Professor of Finance at Southern Illinois University at Carbondale. He received his PhD in Finance. His current research interests include corporate control, board structure, and corporate social responsibility.

Dan L. Worrell received his Ph.D. degree in management. He is a professor in the chairperson of the Management Department in the College of Business at The University of Texas at Arlington. His current research interests include strategic leadership and issues in corporate governance.

Chun I. Lee is currently a Lecturer in Finance at the University of Waikato, New Zealand. He received his DBA in Finance. His current research interests include corporate finance, financial accounting and futures markets.

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Davidson, W.N., Worrell, D.L. & Lee, C.I. Stock market reactions to announced corporate illegalities. J Bus Ethics 13, 979–987 (1994). https://doi.org/10.1007/BF00881667

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