The Impact of SEC Litigation on Firm Value

33 Pages Posted: 19 Feb 2008

See all articles by Yaz Gulnur Muradoglu

Yaz Gulnur Muradoglu

Queen Mary University of London; City University London - Sir John Cass Business School

Jennifer Clark Huskey

Coulter and Justus Financial Services LLC

Abstract

This paper examines the effect of the announcement of the Securities and Exchange Commission's (SEC) legal enforcement actions. The results indicate that SEC lawsuits have a negative effect on share price. This is no surprise, but the real interest lies in understanding what characteristics of the legal enforcement process have greatest effects on firm value. Findings indicate that firms which communicate with the market regarding their enforcement cases receive more favorable treatment than those that do not. The results also show that the markets are able to differentiate between minor and major violations, with fraud and insider trading cases returning greater negative results than procedural violations and improper accounting. Case outcomes also elicit differential reactions; pending and partially settled cases have larger short-term negative returns than cases with known outcomes of similar nature, perhaps due to high levels of uncertainty. The focus is on recent history in an attempt to reflect accurately the current market climate.

JEL Classification: G14, G18, G28

Suggested Citation

Muradoglu, Yaz Gulnur and Clark Huskey, Jennifer, The Impact of SEC Litigation on Firm Value. Available at SSRN: https://ssrn.com/abstract=1094948 or http://dx.doi.org/10.2139/ssrn.1094948

Yaz Gulnur Muradoglu (Contact Author)

Queen Mary University of London ( email )

Francis Bancroft Building
Mile End Road
London, E1 4NS
United Kingdom

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 7040 0124 (Phone)
+44 20 7040 8853 (Fax)

Jennifer Clark Huskey

Coulter and Justus Financial Services LLC ( email )

900 S Gay Street Suite 700,
Knoxville, TN TN 37902
United States

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