Corporate Scandals and Household Stock Market Participation

Mariassunta Giannetti; Tracy Yue Wang

doi:10.1111/jofi.12399

journal article Nov 10, 2016

Corporate Scandals and Household Stock Market Participation

Mariassunta Giannetti

Tracy Yue Wang

The Journal of Finance Vol. 71 No. 6 pp. 2591-2636 · Wiley

View at Publisher Save 10.1111/jofi.12399

Abstract

ABSTRACTWe show that, after the revelation of corporate fraud in a state, household stock market participation in that state decreases. Households decrease holdings in fraudulent as well as nonfraudulent firms, even if they do not hold stocks in fraudulent firms. Within a state, households with more lifetime experience of corporate fraud hold less equity. Following the exogenous increase in fraud revelation due to Arthur Andersen's demise, states with more Arthur Andersen clients experience a larger decrease in stock market participation. We provide evidence that the documented effect is likely to reflect a loss of trust in the stock market.

Topics

No keywords indexed for this article. Browse by subject →

References

40

[1]

10.1086/430808

[2]

10.2307/j.ctvcm4j72

[3]

Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors

Brad M. Barber, Terrance Odean

The Journal of Finance 10.1111/0022-1082.00226

[4]

Boys will be Boys: Gender, Overconfidence, and Common Stock Investment

B. M. Barber, T. Odean

The Quarterly Journal of Economics 10.1162/003355301556400

[5]

10.7208/chicago/9780226076508.003.0006

[6]

10.1016/j.jebo.2003.11.004

[7]

10.1257/aer.98.1.294

[8]

10.1257/aer.98.3.713

[9]

Household Finance

John Y. Campbell

The Journal of Finance 10.1111/j.1540-6261.2006.00883.x

[10]

Who Blows the Whistle on Corporate Fraud?

ALEXANDER DYCK, Adair Morse, Luigi Zingales

The Journal of Finance 10.1111/j.1540-6261.2010.01614.x

[11]

Dyck Alexander AdairMorse andLuigiZingales 2013.How pervasive is corporate fraud?Working paper University of Toronto. 10.2139/ssrn.2222608

[12]

10.1111/j.1740-1461.2004.00008.x

[13]

Fehr Ernst 2009 On the economics and biology of trust Working paper and Presidential Address to the Annual Congress of the European Economic Association.

[14]

10.1016/j.jfineco.2012.06.007

[15]

10.2308/accr.2008.83.1.83

[16]

10.1111/j.1755-053x.2012.01211.x

[17]

Common Errors: How to (and Not to) Control for Unobserved Heterogeneity

Todd A. Gormley, David A. Matsa

Review of Financial Studies 10.1093/rfs/hht047

[18]

10.1111/0022-1082.00355

[19]

10.1162/jeea.2008.6.6.1109

[20]

Trusting the Stock Market

Luigi Guiso, Paola Sapienza, Luigi Zingales

The Journal of Finance 10.1111/j.1540-6261.2008.01408.x

[21]

10.1016/j.jfineco.2007.11.006

[22]

10.1016/j.joep.2006.06.003

[23]

10.1111/j.1540-6261.2005.00730.x

[24]

Karpoff Jonathan M. AllisonKoester D.Scott Lee andGerald S.Martin 2014 Database challenges in financial misconduct research Working paper University of Washington.

[25]

10.1017/s0022109000004221

[26]

The consequences to managers for financial misrepresentation

Jonathan M. Karpoff, D. Scott Lee, Gerald S. Martin

Journal of Financial Economics 10.1016/j.jfineco.2007.06.003

[27]

Karpoff Jonathan M. D.Scott Lee andGerald S.Martin 2014 The economics of foreign bribery: Evidence from FCPA enforcement actions Working paper University of Washington.

[28]

10.1111/jofi.12017

[29]

Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?*

Ulrike Malmendier, Stefan Nagel

The Quarterly Journal of Economics 10.1093/qje/qjq004

[30]

Malmendier Ulrike andStephanNagel 2013 Learning from inflation experiences Working paper UC Berkeley.

[31]

10.1016/0304-405x(91)90015-c

[32]

A Simple Model of Capital Market Equilibrium with Incomplete Information

Robert C. Merton

The Journal of Finance 10.1111/j.1540-6261.1987.tb04565.x

[33]

10.1257/aer.89.5.1279

[34]

Parsons Christopher A. JohanSulaeman andSheridanTitman 2015 The geography of financial misconduct Working paper University of Texas Austin. 10.3386/w20347

[35]

10.1111/j.1540-6261.2006.00895.x

[36]

10.2307/2534614

[37]

10.1093/revfin/hhm012

[38]

Individual Investors and Local Bias

MARK S. SEASHOLES, Ning Zhu

The Journal of Finance 10.1111/j.1540-6261.2010.01600.x

[39]

Vissing‐Jørgensen Annette 2002 Towards an explanation of household portfolio choice heterogeneity: Nonfinancial income and participation cost structures NBERworking paper 8884. 10.3386/w8884

[40]

10.1111/j.1540-6261.2010.01615.x

Metrics

369

Citations

40

References

Details

Published: Nov 10, 2016
Vol/Issue: 71(6)
Pages: 2591-2636
License: View

Authors

M

Mariassunta Giannetti

Stockholm School of Economics, CEPR, and ECGI

T

Tracy Yue Wang

Cite This Article

Mariassunta Giannetti, Tracy Yue Wang (2016). Corporate Scandals and Household Stock Market Participation. The Journal of Finance, 71(6), 2591-2636. https://doi.org/10.1111/jofi.12399

Corporate Scandals and Household Stock Market Participation

You May Also Like