Embezzlement disclosure request and information asymmetry between individual and institutional investors

초록

This paper investigates the effect of embezzlement disclosure requests as well as the information asymmetry among investors for the firms listed on the Korea Exchange. Firms that receive an embezzlement disclosure request exhibit an abnormal return of -8.41% on the request day, an abnormal return of -2.16% on the following day, and a cumulative abnormal return of about -20% leading to the disclosure request. This result confirms that embezzlement is materially bad news, causing substantial loss to the investors. Furthermore, individual investors show net purchases on firms prior to embezzlement disclosure requests while institutional investors show net sales, suggesting that the information asymmetry exists between individual and institutional investors prior to embezzlement disclosure requests causing individual investors trade with institutional investors at an informational disadvantage.

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