Short-term performance of stocks
after fraudulent ﬁnancial
Department of Business Administration, Abant Izzet Baysal University,
Purpose –Availability of accurateand reliable information in ﬁnancial markets helps investors make well-
informed decisions on capital allocationswhich is beneﬁcial for long-term economic growth. In thisregards,
the role of auditing ﬁrms that inspect the ﬁnancial statements of the publicly traded companies in sound
operation of ﬁnancialmarkets has been increasing. The Capital Market Board of Turkey (CMBT) has the task
and responsibilityof investigating fraudulent information disseminatedby the ﬁrms 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
ﬁnancial 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 ﬁnancial irregularities in company operations have any statistically
signiﬁcanteffect on the return of its stock.
Findings –The results indicatethat publication of the ﬁnancial penalty news by CMBT in its bulletin has
almost no statistically signiﬁcant inﬂuence on the performance of the relevant companies’stock in Borsa
Istanbul. The ﬁndings indicatethat either the investors in this particularmarkets do not consider such news
relevant to long-term success of the ﬁrm 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 ﬁnancial reporting, Abnormal return,
Administrative monetary penalties
Paper type Research paper
Accurate and reliable information about the ﬁrms 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 ﬁnancialmarkets 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 ﬁrms offering the ﬁnancial
instruments and the related institutions, such as auditing ﬁrms and the brokers, should be
accurate and the possibilities thatwould lead to misunderstandings by the investors should
be avoided. In this regard, all formal ﬁnancial 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).
Journalof Financial Crime
Vol.26 No. 2, 2019
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