The spillover effect of corporate frauds and stock price crash risk

Fenghua Wen, Diyue Lin, Lei Hu, Shaoyi He and Zhiling Cao

Finance Research Letters, 2023, vol. 57, issue C

Abstract: This paper examines the spillover effect of corporate frauds on interlocked firms that share at least one director with the fraudulent firms. We document a reduction of stock price crash risk of interlocked firms following the frauds. Our findings imply that the spillover effect is mainly motivated by the experiences that interlocked directors learned during frauds. Furthermore, we show that frauds have a stronger effect on the stock price crash risk when interlocked firms are exposed to higher levels of information asymmetry and industry-level competition. We find no evidence that the busyness of the interlocked directors affects the spillover effect.

Keywords: Corporate fraud; Stock price crash risk; Spillover effect; Interlocked director (search for similar items in EconPapers)
JEL-codes: G14 G32 G34 G40 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323005573

DOI: 10.1016/j.frl.2023.104185

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