Database Challenges in Financial Misconduct Research
Jonathan M. Karpoff
University of Washington - Michael G. Foster School of Business
D. Scott Lee
University of Nevada, Las Vegas - Lee Business School
Gerald S. Martin
American University - Kogod School of Business
March 5, 2014
Georgetown McDonough School of Business Research Paper No. 2012-15
Financial misconduct is revealed to investors through a complex sequence of information events. We hand-collect data for 1,099 SEC enforcement cases to examine biases in four popular databases used in financial misconduct research. We find that initial public announcements of financial misconduct occur months before coverage in these databases. These databases omit most relevant announcements because they collect just one type of event or miss events they purportedly capture; most events they do capture are unrelated to financial fraud. Event studies and firm characteristic comparisons show that these database features can lead to economically meaningful biases in corporate finance research.
Number of Pages in PDF File: 66
Keywords: Financial misconduct, restatement, class action lawsuit, Securities and Exchange Commission
JEL Classification: G38; K22; K42; M41working papers series
Date posted: July 19, 2012 ; Last revised: March 8, 2014
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