Research On The Market Reflects To Penalties Of Financial Fraud

With the rapid development of the global economy and the rapid acceleration ofthe extent of capital market integration process, the role of finance and accounting inpromoting the development of the market economy has become increasinglysignificant, but they are like a double-edged sword, while promoting the developmentof capital markets, financial fraud or accounting fraud and other irregularities all havebeen seriously disturbed the good order of the socio-economic development andundermine the healthy development of the capital market, so that the interests ofinvestors and creditors have lost seriously. Meanwhile, as the progress of the era, avariety of methods and techniques of fraud are ever-changing, this not only increasesthe frequency and quantity of financial fraud, but also improves the difficult ofdiscovery and punishment of financial fraud company. Undoubtedly，financial fraud issure to bring some more serious consequences, the most obvious is that listedcompanies will be punished by the relevant regulatory authorities, so that the investor’sstock price will decline substantially, while the auditor will assume greater pressureand risk audit.For Chinese capital market, because of its relatively short developmenthistory, there are still many imperfections, the impact caused by financial fraud maybe greater. Therefore, in view of the seriousness and danger of financial fraud issues,the market reaction on financial fraud penalties have research value.The research inthis area will not only help reduce the investment risk, expand existing research on theeffectiveness of audit theory and securities;but also help investors identify investmentrisks of share price movements of irregularity companies and the independent auditor’sidentify audit risk and fighting for the risk premium of irregularity companies.This paper, firstly, summarizes and analyses the relevant domestic and foreignliteratures from three aspects which are the regulation of listed companies fromfinancial fraud, investors about the market reaction on penalty of financial fraud andauditors about the market reaction on penalty of financial fraud. Secondly, on the basisof viewing the definition of financial fraud from the relevant institutions and scholarsat home and abroad, the paper presents the understanding of financial fraud, andelaborated on four basic characteristics of financial fraud and the harm. Thirdly, itanalyses the listed company’s financial fraud penalties regulatory status quo andproblems of the relevant regulatory authorities, and makes a few suggestions and measures hoping to help solve these problems. Finally, the A-share listed companieswhich all occurred financial fraud from2008to2012and been punished by ChinaSecurities Regulatory Commission, Shanghai Stock Exchange or the Shenzhen StockExchange as the research objects, the paper find companies of occurring financialfraud are focused on the industry having relatively high cost of regulatory capitalthrough statistical analysis of samples; a listed company which occurred financialfraud and been punished by regulatory authorities, before and after a relatively shortperiod of informing the announcement about regulatory penalties, has significantlynegative abnormal returns and cumulative abnormal returns through the event studymethod, in other words, the stock market reaction of investors on penalty of financialfraud is significantly negative; to listed companies which occurred financial fraud andbeen punished by regulatory authorities, auditors not only are more inclined to issuethe standard unqualified audit opinion, but also charge more audit fees after auditingthrough the Logistic regression model and the classical regression model.