Mitigating industry contagion effects from financial reporting fraud: a competitive dynamics perspective of non-errant rival firms exploiting product-market opportunities
Existing studies show that financial reporting frauds by errant firms cause declines in stock market valuations for non-errant rival firms (i.e., industry contagion effects). We posit that contagion effects may be mitigated by investors’ expectations of non-errant rivals exploiting product-market op...
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sg-ntu-dr.10356-1602092023-05-19T07:31:17Z Mitigating industry contagion effects from financial reporting fraud: a competitive dynamics perspective of non-errant rival firms exploiting product-market opportunities Kang, Eugene Soon Lee Thosuwanchot, Nongnapat Gomulya, David Nanyang Business School Business::General Contagion Competitive Dynamics Financial Reporting Fraud Available Slack Resource Deployment Existing studies show that financial reporting frauds by errant firms cause declines in stock market valuations for non-errant rival firms (i.e., industry contagion effects). We posit that contagion effects may be mitigated by investors’ expectations of non-errant rivals exploiting product-market opportunities at the expense of errant firms. We apply the competitive dynamics literature to argue that non-errant rivals experience lower contagion effects when they have more available slack to engage in competitive actions. This effect is expected to strengthen when rival firms have previously deployed more resources for R&D and advertising investments or have higher prior market share growth to demonstrate effective deployments of available resources. These arguments are supported for contagion effects from reports of U.S. SEC investigations from 2001 to 2004. We contribute to research and practice by going beyond discussions on corporate governance to evaluations of key competitive attributes that investors assess when reacting to such frauds. Ministry of Education (MOE) This research is supported by the Ministry of Education, Singapore, under RCC10/2005/NBS 2022-07-18T00:44:40Z 2022-07-18T00:44:40Z 2021 Journal Article Kang, E. S. L., Thosuwanchot, N. & Gomulya, D. (2021). Mitigating industry contagion effects from financial reporting fraud: a competitive dynamics perspective of non-errant rival firms exploiting product-market opportunities. Strategic Organization. https://dx.doi.org/10.1177/14761270211025947 1476-1270 https://hdl.handle.net/10356/160209 10.1177/14761270211025947 en RCC10/2005/NBS Strategic Organization © 2021 The Author(s). All rights reserved. |
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Business::General Contagion Competitive Dynamics Financial Reporting Fraud Available Slack Resource Deployment Kang, Eugene Soon Lee Thosuwanchot, Nongnapat Gomulya, David Mitigating industry contagion effects from financial reporting fraud: a competitive dynamics perspective of non-errant rival firms exploiting product-market opportunities |
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Existing studies show that financial reporting frauds by errant firms cause declines in stock market valuations for non-errant rival firms (i.e., industry contagion effects). We posit that contagion effects may be mitigated by investors’ expectations of non-errant rivals exploiting product-market opportunities at the expense of errant firms. We apply the competitive dynamics literature to argue that non-errant rivals experience lower contagion effects when they have more available slack to engage in competitive actions. This effect is expected to strengthen when rival firms have previously deployed more resources for R&D and advertising investments or have higher prior market share growth to demonstrate effective deployments of available resources. These arguments are supported for contagion effects from reports of U.S. SEC investigations from 2001 to 2004. We contribute to research and practice by going beyond discussions on corporate governance to evaluations of key competitive attributes that investors assess when reacting to such frauds. |
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Nanyang Business School |
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Nanyang Business School Kang, Eugene Soon Lee Thosuwanchot, Nongnapat Gomulya, David |
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Article |
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Kang, Eugene Soon Lee Thosuwanchot, Nongnapat Gomulya, David |
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Kang, Eugene Soon Lee |
title |
Mitigating industry contagion effects from financial reporting fraud: a competitive dynamics perspective of non-errant rival firms exploiting product-market opportunities |
title_short |
Mitigating industry contagion effects from financial reporting fraud: a competitive dynamics perspective of non-errant rival firms exploiting product-market opportunities |
title_full |
Mitigating industry contagion effects from financial reporting fraud: a competitive dynamics perspective of non-errant rival firms exploiting product-market opportunities |
title_fullStr |
Mitigating industry contagion effects from financial reporting fraud: a competitive dynamics perspective of non-errant rival firms exploiting product-market opportunities |
title_full_unstemmed |
Mitigating industry contagion effects from financial reporting fraud: a competitive dynamics perspective of non-errant rival firms exploiting product-market opportunities |
title_sort |
mitigating industry contagion effects from financial reporting fraud: a competitive dynamics perspective of non-errant rival firms exploiting product-market opportunities |
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2022 |
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https://hdl.handle.net/10356/160209 |
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1772826723745792000 |