Stock Market Reactions to Corporate Misconduct

Abstract: This thesis examines how a set of outcomes succeeding corporate misconduct impact the abnormal return of the involved firms. Differentiating between receiving punitive fines and negative media attention the effects on stock returns are estimated. This study suggests that there is a negative effect on the abnormal returns associated with firms being subject to media scrutiny following misconduct. Further, if a scandal is followed by a fine, the return appears to remain at a lower level while if a fine is absent the return reverts to its prior state. It does not appear to be any adverse effects on abnormal returns upon obtaining a fine. The thesis also tests how these differences vary over different countries and types of misconduct and finds that the largest adverse effects on returns occur when firms have been involved in a scandal succeeding white-collar misconduct.