The Real Effects of Corporate Fraud: Evidence from Class Action Lawsuits

Accounting and Finance, Forthcoming

49 Pages Posted: 27 Jun 2014

See all articles by Qingbo Yuan

Qingbo Yuan

University of Melbourne

Yunyan Zhang

University of Melbourne

Multiple version iconThere are 2 versions of this paper

Date Written: June 20, 2014

Abstract

Using a sample of lawsuit firms from 1996 to 2009, this study examines whether fraud revelation through shareholder class action affects corporate financing and investment policies. We predict that revelation of fraud damages defendant firms’ reputation and undermines credibility of their financial disclosure. As a result, such firms experience difficulty in financing and reduce investment accordingly. Consistent with our prediction, we find that fraud-committing firms experience a decline in total financing (total investment) by 1.5% (0.8%) of total assets after fraud revelation. Difference-in-differences analyses reinforce our main findings. The impact is more pronounced for firms with lower inherent fraud incidence.

Keywords: Corporate fraud, Class action lawsuit, Information asymmetry, Financing, Investment

JEL Classification: M40, G32

Suggested Citation

Yuan, Qingbo and Zhang, Yunyan, The Real Effects of Corporate Fraud: Evidence from Class Action Lawsuits (June 20, 2014). Accounting and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2459279

Qingbo Yuan (Contact Author)

University of Melbourne ( email )

Level 7, 198 Berkeley Street, Dept Of Accounting,
Melbourne, Victoria 3010
Australia

Yunyan Zhang

University of Melbourne ( email )

Victoria
Melbourne, 3010
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
235
Abstract Views
2,077
rank
158,751
PlumX Metrics