Financial Misconduct and Strategic Corporate Disclosures

Financial misconduct can lead to significant financial and reputational penalties for a firm and its managers, including hefty fines from regulators and steep drops in stock price. In fact, recent research finds that firms accused of fraud lose an average of 38 percent of their value when the news is announced, two-thirds of which is attributed to lost reputation (Karpoff, Lee, and Martin 2008). How, then, can managers best mitigate this financial and reputational damage?   Prior research points to a few solutions: firing guilty parties, improving corporate governance, and cooperating with regulators.  While these are undeniably important, there may be … Read more