Return and Liquidity Response to SEC Investigation Announcements

35 Pages Posted: 26 Oct 2014

See all articles by Brandon C.L. Morris

Brandon C.L. Morris

Wright State University

Jared F. Egginton

Boise State University - College of Business & Economics

Kathleen P. Fuller

University of Mississippi - School of Business Administration

Date Written: October 24, 2014

Abstract

This study measures the impact government enforcement actions have on investor confidence by examining changes in market quality in the firms investigated by the Securities and Exchange Commission for fraud. The market quality measures we test include returns, price volatility, spreads, and Amihud’s (2002) illiquidity measure. We find that returns improve and price volatility reduces during an SEC investigation. However, spreads widen and illiquidity significantly increases after controlling for the known determinants of liquidity. Our work highlights some of the benefits and costs of having an active regulator of the US securities market.

Keywords: SEC Investigation, Liquidity

Suggested Citation

Morris, Brandon C.L. and Egginton, Jared Frank and Petrie Fuller, Kathleen, Return and Liquidity Response to SEC Investigation Announcements (October 24, 2014). Available at SSRN: https://ssrn.com/abstract=2514407 or http://dx.doi.org/10.2139/ssrn.2514407

Brandon C.L. Morris (Contact Author)

Wright State University ( email )

Dayton, 45435-0001
United States
937-775-2765 (Phone)

Jared Frank Egginton

Boise State University - College of Business & Economics ( email )

United States
2084264586 (Phone)

Kathleen Petrie Fuller

University of Mississippi - School of Business Administration ( email )

PO Box 3986
Oxford, MS 38677
United States

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