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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Main Authors: Kang, Eugene Soon Lee, Thosuwanchot, Nongnapat, Gomulya, David
Other Authors: Nanyang Business School
Format: Article
Language:English
Published: 2022
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Online Access:https://hdl.handle.net/10356/160209
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Institution: Nanyang Technological University
Language: English
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spelling 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.
institution Nanyang Technological University
building NTU Library
continent Asia
country Singapore
Singapore
content_provider NTU Library
collection DR-NTU
language English
topic Business::General
Contagion
Competitive Dynamics
Financial Reporting Fraud
Available Slack
Resource Deployment
spellingShingle 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
description 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.
author2 Nanyang Business School
author_facet Nanyang Business School
Kang, Eugene Soon Lee
Thosuwanchot, Nongnapat
Gomulya, David
format Article
author Kang, Eugene Soon Lee
Thosuwanchot, Nongnapat
Gomulya, David
author_sort 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
publishDate 2022
url https://hdl.handle.net/10356/160209
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