Economics, Econometrics and Finance
4 years ago

Securities fraud in Japan leads to 12% market value loss.

International Review of Law and Economics
Reputational cost of securities fraud in japan under a public-enforcement-centered sanction regime
Qiaochu Zhu

Paper Summary

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Securities fraud in Japan can lead to companies losing a significant portion of their market value due to the reputational damage caused by public enforcement actions. A study found that companies typically lose around 12% of their market value after disclosing potential financial irregularities. The severity of the scandal is reflected in the market reaction to the initial disclosure, which also correlates with the CEO's shareholdings. This shows that Japan's regulatory regime, which focuses on public enforcement rather than class actions, can effectively deter securities fraud by imposing substantial reputational costs on fraudulent companies.