Stock market reactions to announced corporate illegalities

Journal of Business Ethics 13 (12):979 - 987 (1994)
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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