Corporate Scandals and Household Stock Market Participation

Mariassunta Giannetti and Tracy Yue Wang

Journal of Finance, 2016, vol. 71, issue 6, 2591-2636

Abstract: We show that, after the revelation of corporate fraud in a state, household stock market participation in that state decreases. Households decrease holdings in fraudulent as well as nonfraudulent firms, even if they do not hold stocks in fraudulent firms. Within a state, households with more lifetime experience of corporate fraud hold less equity. Following the exogenous increase in fraud revelation due to Arthur Andersen's demise, states with more Arthur Andersen clients experience a larger decrease in stock market participation. We provide evidence that the documented effect is likely to reflect a loss of trust in the stock market.

Date: 2016
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Citations: View citations in EconPapers (108)

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https://doi.org/10.1111/jofi.12399

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Working Paper: Corporate Scandals and Household Stock Market Participation (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:71:y:2016:i:6:p:2591-2636

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