Market Reactions to News of Accounting Manipulation

Abstract

There is not enough empirical evidence about test of the semi-strong efficient hypothesis using newspaper publications.  In this paper, we investigate stock market reactions to news of accounting manipulation which are reported in newspapers.  Semi-strong efficient market hypothesis posits that stock prices quickly reflect all publicly available information, of which the newspaper is a part. Newspapers are a public source of information, and an important transmitter of news to the stock market.  The news of accounting manipulation that is published in newspaper can have repercussions on stock prices.  The purpose of the paper, therefore, is to investigate stock market reactions to news of accounting manipulation that is reported in the newspaper.  To test the semi-strong efficient hypothesis, we focus on newspaper reports of accounting manipulation from 36 countries around the world.  We hypothesise that there are statistically significant differences between means of post- and pre-event day cumulative average abnormal stock returns of firms caught in accounting manipulation.  Results of data analysed using events study methodology are consistent with our hypothesis.

Keywords: Accounting manipulation, Cumulative abnormal stock return, Strong-form market efficiency, Efficient market hypothesis, Newspapers.