Short-term performance of stocks after fraudulent financial reporting announcement
| Date | 01 April 2019 |
| Pages | 464-476 |
| DOI | https://doi.org/10.1108/JFC-11-2016-0076 |
| Published date | 01 April 2019 |
| Author | Mehmet Eryigit |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
Short-term performance of stocks
after fraudulent financial
reporting announcement
Mehmet Eryigit
Department of Business Administration, Abant Izzet Baysal University,
Bolu, Turkey
Abstract
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
1. Introduction
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).
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
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