Authors

Stephen Warde

Document Type

Dissertation

Abstract

During an undergraduate college career, an accounting major devotes a great part of his or her time to learning how publicly traded businesses prepare financial statements in compliance with Generally Accepted Accounting Principles (GAAP) and federal securities laws. These accounting principles, standards, and procedures are ultimately enforced by the U.S. Securities and Exchange Commission (SEC) to protect investors, uphold fair markets, and promote public trust in the capital market system. To fulfill its mission, the SEC Division of Enforcement conducts investigations into possible violations of the federal securities laws and administers enforcement actions. Naturally, SEC investigations and the anticipation of potential enforcement actions have an impact on stock prices and shareholder wealth when they become public knowledge. This capstone research project applies an event study methodology commonly used in finance and accounting research to examine the timing and magnitude of the impact of 51 financial reporting-related SEC enforcement releases from April 2014 through March 2017. Specifically, the statistical methodology is applied to assess the shareholder response with regard to the company targeted, its main competitor, and the nature of the violation. On average, the targeted companies, particularly those with relatively small market capitalizations, earned highly statistically significant negative abnormal returns.