Impact of negative announcements on share prices : - A quantitative study of two Swedish companies

Abstract: Accounting fraud is a common problem in the society and the number of accounting frauds has increased enormously during the last decade. This issue affects a lot of stakeholders in a negative way, such as investors, employees and competitors. Especially, there will be an impact on the investors of the involved company already from the announcement of the fraud in the form of negative changes in share prices. In addition, a negative reputation of a company can have negative effects on the company's auditing firm. It has been argued that the possible consequences of accounting fraud need to be investigated further, in order to see the whole picture of the damages caused by this. Therefore, this study enhances the research field about consequences of accounting fraud by investigating if announcements connected to accounting fraud affect share prices of companies that operate in the same industry sector and are audited by the same auditing firm as the company involved in the announcement. The study chooses to examine this question from an investor´s point of view by investigating announcements of two Swedish companies, namely Prosolvia and Eniro. The study uses the event study methodology, and more specifically the market model, to answer the research questions. The study finds no statistically significant results for that the share prices of companies connected to Prosolvia and Eniro should be negatively affected or differently affected because of having the same auditing firm as the company involved in the announcement.