Karajian, Sarine (2016) Consequences of Fraud and Overcoming Negative Market Reaction. Masters thesis, Concordia University.
Preview |
Text (application/pdf)
1MBSarine Karajian - Thesis Report.pdf - Accepted Version |
Abstract
This paper investigates firms that have attracted scrutiny from the SEC and that have been found to be involved in fraud. We examine the market reaction for the sample of firms following the announcement of their involvement in fraud, which we refer to as trigger event. We match our sample of firms with others by industry, size, market-to-book and Altman Z-Score to compare our sample of firms with others that have not been involved in fraud at the time of trigger event. We find that the fraud sample attract negative and significant returns following the announcement of fraud, in contrast to the control sample. We also examine tactics that firms may use to regain the market’s confidence, such as changes in executives, auditing firm and company name. We find that the market reacts negatively right after the change in executives, but the negative trend is reversed in the long-term for the firms that make the executive change quickly after the trigger event. Similarly, firms that change their auditing firm quickly are better off. We also find that there is significantly higher information asymmetry during the trigger event, litigation date, as well as changes in CEO, CFO and auditor. We also use accrual models to identify earnings management and find that the non-discretionary accruals Jones and Modified Jones models show a significant difference between the two samples, matched and fraud, at the year of the trigger event. Finally, we investigate whether any accounting variables predict financial distress. We find that profitability ratios as well as changes in CFO and auditor are positively and significantly related to and therefore predict the absence of financial distress, in contrary to high debt, according to our findings, predict financial distress.
| Divisions: | Concordia University > John Molson School of Business > Finance |
|---|---|
| Item Type: | Thesis (Masters) |
| Authors: | Karajian, Sarine |
| Institution: | Concordia University |
| Degree Name: | M. Sc. |
| Program: | Business Administration (Finance specialization) |
| Date: | 29 March 2016 |
| Thesis Supervisor(s): | Ullah, Saif |
| Keywords: | Fraudulent activities Accounting Fraud CEO, CFO and auditor turnover Prediction of Distress Bankruptcy Mergers and Acquisitions Deletion |
| ID Code: | 980700 |
| Deposited By: | SARINE KARAJIAN |
| Deposited On: | 17 Jun 2016 14:13 |
| Last Modified: | 17 Aug 2022 16:40 |
References:
REFERENCES1. Agrawal, Anup, and Tommy Cooper. 'Corporate Governance Consequences of Accounting Scandals: Evidence from Top Management, CFO and Auditor Turnover'. SSRN Electronic Journal n. pag. Web.
2. Agrawal, Anup, Jeffrey F. Jaffe, and Jonathan M. Karpoff. 'Management Turnover and Governance Changes Following the Revelation of Fraud*'. The Journal of Law and Economics 42.s1 (1999): 309-342. Web.
3. Altman, E. I. (1968). Financial ratios, discriminant analysis, and the prediction of corporate bankruptcy. Journal of Finance, 23, 589-609
4. Barakat, Ahmed, Anna Chernobai, and Mark Wahrenburg. 'Information Asymmetry around Operational Loss Announcements in U.S. Financial Firms'. SSRN Electronic Journal n. pag. Web.
5. Bartov, Eli, Ferdinand A. A. Gul, and Judy S.L. Tsui. 'Discretionary-Accruals Models and Audit Qualifications'. SSRN Electronic Journal (2000) n. pag. Web.
6. Bonnier, Karl-Adam, and Robert F. Bruner. 'An Analysis of Stock Price Reaction to Management Change in Distressed Firms'. Journal of Accounting and Economics 11.1 (1989): 95-106. Web.
7. Bonnier, Karl-Adam, and Robert F. Bruner. 'An Analysis of Stock Price Reaction to Management Change in Distressed Firms'. Journal of Accounting and Economics 11.1 (1989): 95-106. Web.
8. Cerqueira, Antonio, and Claudia Pereira. 'Accounting Accruals and Information Asymmetry in Europe'. Prague Economic Papers (2015): n. pag. Web.
9. Corwin, Shane A., And Paul Schultz. 'A Simple Way To Estimate Bid-Ask Spreads From Daily High And Low Prices'. The Journal of Finance 67.2 (2012): 719-760. Web.
10. Dikolli, Shane S., William J. Mayew, and Dhananjay Nanda. 'CEO Tenure and the Performance-Turnover Relation'. Review of Accounting Studies 19.1 (2013): 281-327. Web.
11. Durrani, Farooq. 'The Impact of a Corporate Name Change on Stock Price and Trading Volume of Canadian Companies'. (2013): n. pag. Print.
12. Garza Gomez, Xavier, Masashi Okumura, and Michio Kunimura. 'Discretionary Accrual Models and the Accounting Process'. SSRN Electronic Journal n. pag. Web.
13. GE, Weili, Dawn Matsumoto, and Jenny Li Zhang. 'Do Cfos Have Style? An Empirical Investigation of the Effect of Individual Cfos on Accounting Practices*'. Contemporary Accounting Research 28.4 (2011): 1141-1179. Web.
14. Hennes, Karen M., Andrew J. Leone, and Brian P. Miller. 'Auditor Dismissals around Accounting Restatements'. SSRN Electronic Journal n. pag. Web.
15. Jones, Keith L., Gopal V. Krishnan, and Kevin Melendrez. 'Do Models Of Discretionary Accruals Detect Actual Cases Of Fraudulent And Restated Earnings? An Empirical Evaluation'. SSRN Electronic Journal n. pag. Web.
16. Karpoff, Jonathan M., D. Scott Lee, and Gerald S. Martin. 'The Cost to Firms of Cooking the Books'. Journal of Financial and Quantitative Analysis 43.03 (2008): 581. Web.
17. Karpoff, Jonathan M., D. Scott Lee, and Gerald S. Martin. 'The Consequences to Managers for Financial Misrepresentation'. Journal of Financial Economics 88.2 (2008): 193-215. Web.
18. Kedia, Simi, and Thomas Philippon. 'The Economics of Fraudulent Accounting'. SSRN Electronic Journal n. pag. Web.
19. Khanna, Vikramaditya S., E. Han Kim, and Yao Lu. 'CEO Connectedness and Corporate Frauds'. SSRN Electronic Journal n. pag. Web.
20. Kothari, S.P., Andrew J. Leone, and Charles E. Wasley. 'Performance Matched Discretionary Accrual Measures'. SSRN Electronic Journal n. pag. Web.
21. Mackinlay, A. C. (1997). Event studies in economics and finance. Journal of Economic Literature, 35, 13-39.
22. Martani, Dwi, Mulyano, Khairurizka, Rahfiani.'The Effect Of Financial Ratios, Firm Size, And Cash Flow From Operating Activities In The Interim Report To The Stock Return'. CBR 08.06 (2009): n. pag. Web.
23. Palmrose, Zoe-Vonna, Vernon J. Richardson, and Susan W. Scholz. 'Determinants of Market Reactions to Restatement Announcements'. SSRN Electronic Journal n. pag. Web.
24. Pritchard, Adam C., and Stephen P. Ferris. 'Stock Price Reactions to Securities Fraud Class Actions under the Private Securities Litigation Reform Act'. SSRN Electronic Journal n. pag. Web.
25. Reoccurrence of Financial Restatements: The Effect of Auditor Change, Management Turnover and Improvement of Internal Control Yu-Ho Chi University of North Carolina at Pembroke Huey-Lian Sun Morgan State University
26. Setiawan, Doddy. 'An Analysis of Market Reaction to CEO Turnover Announcement: The Case In Indonesia'. International Business & Economics Research Journal 7.2 (2008): n. pag. Print.
27. Teoh, Siew Hong. 'Auditor Independence, Dismissal Threats, and the Market Reaction to Auditor Switches'. Journal of Accounting Research 30.1 (1992): 1. Web.
28. Theodossiou, Panayiotis et al. 'Financial Distress and Corporate Acquisitions: Further Empirical Evidence'. Journal of Business Finance & Accounting 23.5-6 (1996): 699-719. Web.
29. Kellogg.northwestern.edu,. 'Programming Advice - Finance Panel Data Sets -- Kellogg School Ofmanagement'. N.p., 2015. Web. 6 Nov. 2015.
Repository Staff Only: item control page
Download Statistics
Download Statistics