Stock Price Reaction And Its Determinants : Corporate Crime Announcement In Malaysia

• Main Author: Sim, Hui Ying
• Format: Final Year Project Report
• Language: English
• Published: Universiti Malaysia Sarawak (UNIMAS) 2014
• Subjects: HG Finance
• Online Access: http://ir.unimas.my/id/eprint/24772/2/Sim%20Hui%20Ying.pdf; http://ir.unimas.my/id/eprint/24772/

Corporate crime is not a new case happen in Malaysia. The number of corporate crime in Malaysia shown an increasing trend from year to year and it is a serious issue that connecting to the ethics and profitability. Therefore, the investigation of stock prices focusing the performance of stock market on the announcement and the relationship between stock price reactions, market size of firm and firm’s reputation towards the announcement of corporate’s illegal activities in Malaysia is observed. This investigation is conducted by utilizing panel data econometric techniques with the periods from January 2000 to December 2012 and sample size is a group of public listed companies which is charged by Securities Commission for committing in corporate crime. The market model event study methodology and fixed effect regression analysis is employed to analyze the data that obtained from Yahoo Finance and Bursa Malaysia. The findings revealed that there is no significant abnormal performance on the event day. But significant on subsequent day that is day 3, 7 and also two weeks after the announcement – day 15, 16, 18 and 23. Hence, the stock market can be explained as not efficient. In addition, the empirical result of the regression analysis obtained from the fixed effects model with the assistance of several diagnostic tests reveals that there is no significant relationship between cumulative abnormal returns and book-to-market ratio of firms whereas the market capitalization has significant relationship with cumulative abnormal returns. In overall, the findings indicate that the market size and reputation of firms reflect to the reactions of stock price towards allegations of corporate’s illegal activities. The large market size of firms with relatively high value of book to-market ratios would experience less losses of the shareholder’s wealth even though the coefficient of SIZE is not statistically significant.