Short-term performance of stocks after fraudulent financial reporting announcement

Author:Mehmet Eryigit
Position:Department of Business Administration, Abant Izzet Baysal University, Bolu, Turkey
Pages:464-476
SUMMARY

Purpose Availability of accurate and reliable information in financial markets helps investors make well-informed decisions on capital allocations which is beneficial for long-term economic growth. In this regards, the role of auditing firms that inspect the financial statements of the publicly traded companies in sound operation of financial markets has been increasing. The Capital... (see full summary)

 
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Short-term performance of stocks
after fraudulent nancial
reporting announcement
Mehmet Eryigit
Department of Business Administration, Abant Izzet Baysal University,
Bolu, Turkey
Abstract
Purpose Availability of accurateand reliable information in nancial markets helps investors make well-
informed decisions on capital allocationswhich is benecial for long-term economic growth. In thisregards,
the role of auditing rms that inspect the nancial statements of the publicly traded companies in sound
operation of nancialmarkets has been increasing. The Capital Market Board of Turkey (CMBT) has the task
and responsibilityof investigating fraudulent information disseminatedby the rms whose stocks are traded
in Borsa Istanbul. The investigations can lead to monetary penalties if fraud is proven and the results are
published by CMBTin its weekly bulletin. The present study aims to examine the effect of announcementsof
nancial irregularitiesof companies in CMBT Bulletin on the performanceof the relevant company stock in
the short term.
Design/methodology/approach This study uses abnormal return,cumulative abnormal return and
cumulative average abnormalreturn as metrics and parametric, as well as non-parametric tests to ascertain
whether the announcements of nancial irregularities in company operations have any statistically
signicanteffect on the return of its stock.
Findings The results indicatethat publication of the nancial penalty news by CMBT in its bulletin has
almost no statistically signicant inuence on the performance of the relevant companiesstock in Borsa
Istanbul. The ndings indicatethat either the investors in this particularmarkets do not consider such news
relevant to long-term success of the rm or the announcement does not provide any new information and
penaltieshave been priced into the stock before the announcement in the bulletin.
Originality/value In literature there is no more research about the effect of the announcements of
administrativemonetary penalties and crime complaintson the stock returns.
Keywords Event studies, Fraudulent nancial reporting, Abnormal return,
Administrative monetary penalties
Paper type Research paper
1. Introduction
Accurate and reliable information about the rms and their operations is one of the most
essential requirements for the investorsto make sound investment decisions. Such a need is
even more important in nancialmarkets compared to the one in real markets because of the
difference in the characteristic time of investment decision-making process in the two.
Therefore, the presentation of information by both the rms offering the nancial
instruments and the related institutions, such as auditing rms and the brokers, should be
accurate and the possibilities thatwould lead to misunderstandings by the investors should
be avoided. In this regard, all formal nancial markets have principles and rules regulated
by the law for the relevant institutions to present the old and the new information that may
This study was derived from social science project supported by TUB_
ITAK SOBAG (214K009).
JFC
26,2
464
Journalof Financial Crime
Vol.26 No. 2, 2019
pp. 464-476
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-11-2016-0076
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm

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