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The Impact of Illegal Business Practice on Shareholder Returns

Alan K Reichert, Michael Lockett and Ramesh Rao ()

The Financial Review, 1996, vol. 31, issue 1, 67-85

Abstract: Data regarding illegal firm behavior were obtained for the period 1980-1990. Using the single index market model, the study finds that public announcements of indictments for major corporate crimes have a significant and long-term negative impact upon shareholder wealth, particularly for firms found guilty of the indictment. The results indicate that indictments of larger firms have a proportionally smaller impact on excess returns. Furthermore, indictments handed down since the Levine/Boesky scandal appear to have had a more adverse impact. Copyright 1996 by MIT Press.

Date: 1996
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