2023/10/03 by SHANTANU BANERJEE, Shantanu Banerjee, Sudipto Dasgupta +5 · 17 citations
Business, Management and Accounting · Social Sciences · #Accounting #Auditing, Earnings Management, Governance #Business #Capital (architecture) #Corporate Finance and Governance #Corruption and Economic Development #Cost of capital #Economics #Equity (law) #Exploit #Industrial organization #Microeconomics #Monetary economics #Shock (circulatory) #Spillover effect #Transparency (behavior)
paper · pdf · doi:10.1111/1475-679x.12510
published in Journal of Accounting Research 62(1), 55-99 (Wiley)
openalex publication_date 2023/10/03 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/25
ABSTRACT We show that information complementarities play an important role in the spillover of transparency shocks. We exploit the revelation of financial misconduct by S&P 500 firms, and in a “Stacked Difference‐in‐Differences” design, find that the implied cost of capital increases for “close” industry peers of the fraudulent firms relative to “distant” industry peers. The spillover effect is particularly strong when the close peers and the fraudulent firm share common analyst coverage and common institutional ownership, which have been shown to be powerful proxies for fundamental linkages and information complementarities. We provide evidence that increase in the cost of capital of peer firms is due, at least in part, to “beta shocks.” Disclosure by close peers—especially those with co‐coverage and co‐ownership links—also increases following fraud revelation. Although disclosure remains high in the following years, the cost of equity starts to decrease.