Personal Character and Firm Performance. The Economic Implications of Having Fraudulent Board Members

Unique proprietary data on Swedish board members reveal that a non-trivial proportion of board members in Swedish listed firms have been convicted of serious crimes. Analyzing the data shows that board members with personal fraudulent behavior are more likely to be males than females. We also find that the greater the proportion of fraudulent board members, the lower is the profitability and the higher are the earnings (and cash flows) volatility of the firm. However, the negative effect of fraudulent behavior on profitability is mitigated when fraudulent board members have a larger stake in the firm’s equity. Finally, we find that the earnings of firms with more fraudulent board members are lower and less value-relevant. Given the strong legal enforcement in Sweden, our results raise serious concerns about the effects of board members’ personal fraudulent behavior on firm performance and risk-taking in other countries, particularly the United States and the United Kingdom.Fraudulent behavior; Fraud; Crimes; Convicted board members; Corporate governance; Profitability; Earnings volatility

Earnings-related anomalies in a thin security market : an accounting-based risk estimation approach

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Stock returns and earnings announcements in Finland

The stock market's reaction to the earnings announcements of Finnish firms is investigated. A risk estimation approach based on accounting information is applied along with a market model. Accounting information is utilized for risk estimation purposes by using the information incorporated in the accounting variables measuring the real determinants of systematic risk. The empirical results indicate that the delay in the market's reaction to negative unexpected earnings differs from that of the positive unexpected earnings. The results of comparing different risk adjusting methods indicate that the drift in stock returns around the earnings announcements is weaker in the case of long return windows when the risk estimation method based on the pure accounting information is applied. This indicates that the previous results concerning the drift in returns may be due to incorrectly measured abnormal returns.

Financial market liberalization and the relationship between stock returns and financial leverage in Finland

The results of this note indicate that the return-leverage relation turned from negative to positive in Finland in the late 1980s. This finding is explained by the liberalization of Finnish financial markets and the decrease in the degree of financial leverage of Finnish listed firms. The results highlight the remarkable effect of the financial market liberalization on the financial management of Finnish firms and the empirical results on the Finnish financial markets.

Finnish earnings response coefficients: the information content of losses

This paper provides new evidence on the information content of losses in the relation between stock returns and annual accounting earnings. Consistent with earlier US evidence, accounting losses are not significantly related to stock returns in Finland. Moreover, it is shown that the different methods used to measure earnings in Finland affect the frequency of losses, substantially altering the estimated return-earnings relation. The results suggest that earnings adjusted in accordance with the recommendations of the Finnish Committee for Corporate Analysis are not more useful than the unadjusted reported earnings in explaining stock returns in Finland.