Research

Disclosure of allegedly illegal corporate activities and information risk

We investigate how the disclosure of allegedly illegal corporate activities such as the backdating of stock option grants affects the “information risk” of accused companies. This research provides evidence about the consequences of this risk change on equity values. We compare the earnings' response coefficients (ERC) for companies charged with backdating before and after it was revealed that these companies allegedly engaged in these activities. Our results show a U-shape pattern in ERC across post-backdating periods, suggesting a temporary decline in information risk. We also estimate the amount of company valuation losses that are based on the changes in the ERC. We find, on average, that a firm suffered approximately $26.2

Publication Information
Article Title: Disclosure of allegedly illegal corporate activities and information risk
Journal: Advances in Accounting (Dec, 2009)
Author(s): Cheng, Xiaoyan;  Crabtree, Aaron D;  Smith, David B
Researcher Information
    
Crabtree, Aaron D
Crabtree, Aaron D
Director of the School of Accountancy
Accountancy
CoB 435 B
P.O. Box 880488
University of Nebraska-Lincoln
Lincoln, NE 68588-0488, USA
Phone: (402) 472-2337
Fax: (402) 472-4100
acrabtree2@unl.edu
Smith, David B
Smith, David B
Ray Dein Professor & Deloitte Scholar
Accountancy
CoB 445 K
P.O. Box 880488
University of Nebraska-Lincoln
Lincoln, NE 68588-0488, USA
Phone: (402) 472-2927
Fax: (402) 472-4100
dsmith19@unl.edu