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THE EFFECT OF ANNOUNCEMENT OF BRIBERY, SCANDAL, WHITE COLLAR CRIME, AND ILLEGAL PAYMENT ON RETURNS TO SHAREHOLDERS

THE EFFECT OF ANNOUNCEMENT OF BRIBERY, SCANDAL, WHITE COLLAR CRIME, AND ILLEGAL PAYMENT ON RETURNS TO SHAREHOLDERS,Spuma M. Rao

THE EFFECT OF ANNOUNCEMENT OF BRIBERY, SCANDAL, WHITE COLLAR CRIME, AND ILLEGAL PAYMENT ON RETURNS TO SHAREHOLDERS   (Citations: 1)
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This study adds to the empirical evidence supporting a significant connection between ethics and profitability by examining the connection between published reports of unethical behavior-in terms of bribery, scandal, white collar crime, and illegal payment-by publicly traded U.S. and multinational firms and the performance of their stock. Using reports of this unethical behavior-published in the Wall Street Journal from 1989 to 1993, and the standard event-study methodology, the analysis shows that the actual stock performance for those companies was lower than the expected market adjusted returns. Unethical conduct by firms which is discovered and publicized does impact on the shareholders by lowering the value of their stock for an appreciable period of time. Whatever their views on whether ethical behavior is profitable, managers should be able to see a definite connection between unethical behavior and the worth of their firm's stock. Stockholders, the press and regulators should find this information important in pressing for greater corporate and managerial accountability.
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    • ...Using the event-study methodology proposed by Rao (1997), monthly average abnormal returns (AARs) and cumulative average abnormal returns (CAARs) for the sample of 8 announcements of separate crimes ranging from 12 months prior to and 6 months after the announcement dates are determined...
    • ...In addition, Rao (1996) and Rao (1997) found that the stock market is not reacting efficiently when the announcement concerning environmental pollution, bribery, scandal, white-collar crime and illegal payment activities by a firm is made...
    • ...After identifying the sample of firms needed in the study, the work of Rao (1997) will be used and put to test in this study...
    • ...By applying the eventstudy methodology proposed by Rao (1997), the performance for the sample was a decreasing positive AAR from 3.16% for the first month after the announcement date decreased to 1.92% for the second month after the announcement date...

    Sze-Ling Voonet al. CORPORATE CRIME ANNOUNCEMENT EFFECTS ON STOCK PERFORMANCE: AN EMPIRICA...

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