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Financial Crime and Punishment: A Meta-Analysis

Author

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  • Laure de Batz

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic
    Centre d´Economie de la Sorbonne, Universite Paris)

  • Evzen Kocenda

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic
    Institute of Information Theory and Automation, Czech Academy of Sciences, Prague, Czech Republic
    CESifo, Munich, IOS, Regensburg)

Abstract

We examine how the publication of intentional financial crimes committed by listed firms is interpreted by financial markets, using a systematic and quantitative review of existing empirical studies. Specifically, we conduct a meta-regression analysis and investigate the extent and nature of the impact that the publication of financial misconducts exerts on stock returns. We survey 111 studies, published between 1978 and 2020, with a total of 439 estimates from event studies. Our key finding is that the average abnormal returns calculated from this empirical literature are affected by a negative publication selection bias. Still, after controlling for this bias, our meta-analysis indicates that publications of financial crimes are followed by statistically significant negative abnormal returns, which suggests the existence of an informational effect. Finally, the MRA results demonstrate that crimes committed in common law countries, alleged crimes, and accounting crimes carry particularly weighty information for market participants. The results call for more transparency on side of enforcers along enforcement procedures, to foster timely and proportionate market reactions and support efficient markets.

Suggested Citation

  • Laure de Batz & Evzen Kocenda, 2020. "Financial Crime and Punishment: A Meta-Analysis," Working Papers IES 2020/40, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2020.
    • Handle: RePEc:fau:wpaper:wp2020_40
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    File URL: https://ies.fsv.cuni.cz/en/veda-vyzkum/working-papers/6299
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    Cited by:

    1. Laure Batz, 2023. "Financial market enforcement in France," European Journal of Law and Economics, Springer, vol. 55(3), pages 409-468, June.

    More about this item

    Keywords

    Meta-Analysis; Event study; Financial Misconduct; Fraud; Financial Markets; Information and Market Efficiency; Returns; Listed Companies;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-

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