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The Effect of U.S. Securities Exchange Commission Accusations on Company Performance: Event Study

Case
By: Published: 2019 | Product: SAGE Research Methods Cases Part 2
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Abstract

This case uses the event-study method to explore the stock market reaction to the performance of U.S. companies accused of revenue manipulation by the U.S. Securities Exchange Commission. The objective of this case is to discuss the challenges of applying the event-study method to announcements of companies’ financial performance. The case provides examples of four companies accused by the U.S. Securities Exchange Commission of manipulating revenue. The daily share prices calculate excess returns and cumulative excess returns around the event (accusation) day. In evaluating the context of the events, this case uses content analysis to complement event studies. I present a summary of previous empirical works to summarize the factors that could influence investors’ perception of accused companies by the U.S. Securities Exchange Commission; these include the companies’ size, profitability, liquidity, and solvency before the accusation date. Also, the number of charges and penalties, the type of accusation, and the industry classifications may influence accused companies’ performance. I present several models to estimate excess returns and cumulative excess returns. Students can replicate the introduced methods and statistical tools for similar economic events. Students may also derive the advantages and disadvantages of the event-study techniques from studying this case.

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