Abstract

http://ssrn.com/abstract=2112569
 
 

References (47)



 
 

Citations (5)



 


 



Proxies and databases in financial misconduct research


Jonathan M. Karpoff


University of Washington - Michael G. Foster School of Business

Allison Koester


Georgetown University

D. Scott Lee


University of Nevada, Las Vegas - Lee Business School

Gerald S. Martin


American University - Kogod School of Business

July 1, 2016


Abstract:     
An extensive accounting and finance literature examines the causes and effects of financial misreporting or misconduct based on samples drawn from four popular databases that identify restatements, securities class action lawsuits, and Securities and Exchange Commission (SEC) Accounting and Auditing Enforcement Releases (AAERs). We show, however, that the results from empirical tests can depend on which database is accessed. To examine the causes of such discrepancies, we compare the information in each database to a detailed sample of 1,243 case histories in which the SEC brought enforcement action for financial misrepresentation. These comparisons allow us to identify, measure, and estimate the economic importance of four characteristics of each database that affect inferences from empirical tests. First, these databases contain information on only the event that is used to proxy for misconduct (e.g., restatements), so they omit other relevant announcements that affect a researcher’s interpretation and use of the events. Second, the initial public revelation of financial misconduct occurs, on average, months before the initial coverage in these databases, leading to discrepancies in event study measures and pre/post comparison tests. Third, most of the events captured by these databases are unrelated to financial fraud, and efforts to cull out non-fraud events yield heterogeneous results. Fourth, the databases omit large numbers of events they were designed to capture. We show the extent to which each database is subject to these concerns and offer suggestions for researchers seeking to use these databases.

Number of Pages in PDF File: 61

Keywords: Financial misconduct, restatement, class action lawsuit, Securities and Exchange Commission

JEL Classification: G38; K22; K42; M41


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Date posted: July 19, 2012  

Suggested Citation

Karpoff, Jonathan M. and Koester, Allison and Lee, D. Scott and Martin, Gerald S., Proxies and databases in financial misconduct research (July 1, 2016). Available at SSRN: http://ssrn.com/abstract=2112569 or http://dx.doi.org/10.2139/ssrn.2112569

Contact Information

Jonathan M. Karpoff (Contact Author)
University of Washington - Michael G. Foster School of Business ( email )
Box 353200
Seattle, WA 98195-3200
United States
206-685-4954 (Phone)
206-221-6856 (Fax)
Allison Koester
Georgetown University ( email )
McDonough School of Business
Washington, DC 20057
United States
202.687.6461 (Phone)
HOME PAGE: http://explore.georgetown.edu/people/apk29/

D. Scott Lee
University of Nevada, Las Vegas - Lee Business School ( email )
4505 S. Maryland Parkway
Box 456008
Las Vegas, NV 89154-6008
United States
702-895-2526 (Phone)
702-895-4630 (Fax)
HOME PAGE: http://faculty.unlv.edu/slee
Gerald S. Martin
American University - Kogod School of Business ( email )
Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-3914 (Phone)
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