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The Impact of Illegal Business Practice on Shareholder Returns

Author

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  • Reichert, Alan K
  • Lockett, Michael
  • Rao, Ramesh P

Abstract

Data regarding illegal firm behavior were obtained for the period 1980-1990. Using the single index market model, the study finds that public announcements of indictments for major corporate crimes have a significant and long-term negative impact upon shareholder wealth, particularly for firms found guilty of the indictment. The results indicate that indictments of larger firms have a proportionally smaller impact on excess returns. Furthermore, indictments handed down since the Levine/Boesky scandal appear to have had a more adverse impact. Copyright 1996 by MIT Press.

Suggested Citation

  • Reichert, Alan K & Lockett, Michael & Rao, Ramesh P, 1996. "The Impact of Illegal Business Practice on Shareholder Returns," The Financial Review, Eastern Finance Association, vol. 31(1), pages 67-85, February.
    • Handle: RePEc:bla:finrev:v:31:y:1996:i:1:p:67-85
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    Citations

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    Cited by:

    1. Peter-Jan Engelen, 2011. "Legal versus Reputational Penalties in Deterring Corporate Misconduct," Chapters, in: Mehmet Ugur & David Sunderland (ed.), Does Economic Governance Matter?, chapter 4, Edward Elgar Publishing.
    2. Malay Biswas, 2017. "Are They Efficient in the Middle? Using Propensity Score Estimation for Modeling Middlemen in Indian Corporate Corruption," Journal of Business Ethics, Springer, vol. 141(3), pages 563-586, March.
    3. Gillet, Roland & Hübner, Georges & Plunus, Séverine, 2010. "Operational risk and reputation in the financial industry," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 224-235, January.
    4. Aigbe Akhigbe & Bhanu Balasubramnian & Ann Marie Whyte, 2020. "Foreign Exchange Manipulation and the Equity Returns of Global Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 57(2), pages 207-230, April.
    5. Haunschild, Pamela & Page, Karen & Sullivan, Billian Ni, 2000. "Organizations Non-gratae? The Impact of Unethical Corporate Behavior On Interorganizational Networks," Research Papers 1623, Stanford University, Graduate School of Business.
    6. Lucy Sojung Lee & Weiguo Zhong, 2020. "Responses to alliance partners’ misbehavior and firm performance in China: the moderating roles of Guanxi orientation," Asian Business & Management, Palgrave Macmillan, vol. 19(3), pages 344-378, July.
    7. Nadine Gatzert & Joan T. Schmit & Andreas Kolb, 2016. "Assessing the Risks of Insuring Reputation Risk," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(3), pages 641-679, September.
    8. Bilian Ni Sullivan & Pamela Haunschild & Karen Page, 2007. "Organizations Non Gratae? The Impact of Unethical Corporate Acts on Interorganizational Networks," Organization Science, INFORMS, vol. 18(1), pages 55-70, February.
    9. Mohamad Zeidan, 2013. "Effects of Illegal Behavior on the Financial Performance of US Banking Institutions," Journal of Business Ethics, Springer, vol. 112(2), pages 313-324, January.
    10. Zahid Iqbal & Kun Wang & Sewon O, 2011. "Board independence and market reactions around news of stock option backdating," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 35(1), pages 104-115, January.
    11. 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.

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