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The market response to corporate scandals involving CEOs

journal contribution
posted on 2023-06-08, 19:47 authored by Surendranath R Jory, Thanh N Ngo, Daphne Wang, Amrita SahaAmrita Saha
This article examines corporate scandals of both a financial and nonfinancial nature between 1993 and 2011 which is expressly linked to a firm’s CEO. Findings suggest that in the short run, investors react adversely to such events and that recalcitrant CEOs end up costing their shareholders dearly. Such scandals are more likely to occur among large firms, firms with insiders on the board and where the value of options granted to a firm’s managers is substantial. However, firms with more cash flows are less likely to be mired in such scandals, and their stock returns are less likely to be affected. There is an increase in stock price volatility of affected firms in the days following the announcement of the scandal. A point of respite for investors is the damage being confined to the short run. The stock price performance of the firms affected by the scandals matches the performance of control firms in the long run post-announcement. However, the operating performance of the sample firms is better than their matched counterparts in the years after the scandal. We contribute to the extant literature by considering corporate scandal events that are the doings of a firm’s CEO and not necessarily financially motivated.

History

Publication status

  • Published

Journal

Applied Economics

ISSN

0003-6846

Publisher

Taylor & Francis

Issue

17

Volume

47

Page range

1723-1738

Department affiliated with

  • Business and Management Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2015-01-27

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