an analysis of database challenges in financial misconduct research n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
An Analysis of Database Challenges in Financial Misconduct Research PowerPoint Presentation
Download Presentation
An Analysis of Database Challenges in Financial Misconduct Research

Loading in 2 Seconds...

play fullscreen
1 / 24

An Analysis of Database Challenges in Financial Misconduct Research - PowerPoint PPT Presentation


  • 97 Views
  • Uploaded on

An Analysis of Database Challenges in Financial Misconduct Research. R estatement announcements GAO – Government Accountability Office AA – Audit Analytics Securities class action lawsuits SCAC – Stanford Securities Class Action Clearinghouse

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'An Analysis of Database Challenges in Financial Misconduct Research' - rupali


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
databases misreporting studies

Restatement announcements

GAO – Government Accountability Office

AA– Audit Analytics

Securities class action lawsuits

SCAC – Stanford Securities Class Action Clearinghouse

Administrative proceedings & Litigation releasesthat censure accountants

AAER – Accounting and Auditing Enforcement Releases secondary designation assigned by the SEC

Databases – misreporting studies
documenting each database s features

Create a comprehensive database with:

  • All 1,099 cases (includes 10,415 events) for which the SEC brings an enforcement action for §13(b) violations

Books & records and internal control violations (FCPA)

2. Assemble data related to these cases from:

          • www.sec.gov
          • www.usdoj.gov
          • Wolters Kluwer Law & Business Securities electronic library
          • PACER (court documents)
          • Lexis-Nexis’ All News and Dow Jones’ Factiva (press releases and articles)

3. Merge in GAO, AA, SCAC, and AAER database events

    • Which §13(b) violations are included/missed by each database?
    • What ancillary information is included/missed by each database?
Documenting each database’s features
slide4

Consider a firm picked up by all 4 databases:

Brocade Communications

A total of 23 unique event dayswith specific incremental information about Brocade’s financial misrepresentation

how can so many dates be relevant

Jan 6, 2005: Brocade press release (issued after trading hours) announces its 2001-2003 financial statements will be restated due to improper accounting for stock options

Mar 10, 2005: SEC begins an informal inquiry

June 10, 2005: SEC begins a formal investigation

How can so many dates be relevant?
slide7

Brocade Communications

… a class action lawsuit is filed, and settled 3 years later…

slide8

Brocade Communications

… and the SEC issues 15 different Administrative Proceedings

and/or Litigation Releases spanning 5 years

slide9

GAO hits 4 of 23 events

  • AA hits 2 of 23 events
slide11

AAER hit rate = 2 of 23 events

Both AAERs relate to the SEC’s censure of two former Brocade executives who are CPAs.

5 database features and brocade

Initial revelation dates

    • GAO and AA identify the initial misconduct date
      • Brocade’s announcement occurred after the U.S. markets close
    • First event in SCAC is 4 months after initial revelation
    • AAERs are 4 YEARS later

2. Scope limitations

    • Of 23 events, GAO captures 4, AA, SCAC, and AAER capture 2 each

3. Omissions

    • Only AA misses “same-type” events(unusualby selection)

4. Multiple events per case

    • All databases have this

5. Extraneous events

    • Can’t illustrate with a case chosen because it includes a §13(b)
5 Database Features and Brocade
we are concerned with how these databases perform in describing 13 b violations

Table 2, Panel A

We are concerned with how these databases perform in describing §13(b) violations

Important:All comparisons refer ONLY to the subset of events and cases in each database associated with a §13(b) violation

slide17

Feature #5: Extraneous cases

Table 6, Panel A

  • NOTsuggesting that extraneous events/cases should be omitted from each database
  • Documenting the culling process facing researchers who use these databases to study financial misrepresentation
slide18

Feature #3b: Omitted Cases

(during coverage period)

Table 4, Panel B

slide19

Feature #2: Scope Limitations

Table 3, Panel B

  • NOT suggesting GAO should include all 4,336 events
  • But, remember the hazard of considering only the “elephant’s tusk”
slide20

Economic Magnitude of Features #2 and #3

(Scope Limitation and Omissions)

Table 7, Panel B: Mean market-adj. CAR over all event dates identified in each case

lessons

Financial misconduct cases are complex

  • Scope limitations can affect economic significance inferences
      • Researchers should look beyond individual databases
  • High event/case omission rates  contaminated control samples
  • Ad hoc culling tends to select extreme incidents which yields unrepresentative and biased inferences
  • Financial misconduct is NOT necessarily fraud
    • 25% of 13(b) violations do NOT involve fraud charges
    • 50% for AAERs
    • 90% for securities class action lawsuits and restatement announcements
Lessons