Business
Scandal-hit firms could perform better in the long run
London, Feb 7
Corporate scandals have no
long-term negative impact on share prices and can even lead to better
performance, claims a study of 80 major companies including Apple,
Hewlett Packard, IBM, JP Morgan and Yahoo.
The corrective measures put in place after a scandal translate into improved operating performance, the findings showed.
"Corporate
scandals can act as a catalyst to implement changes that benefit
investors. The companies put in place safeguards to protect against
future abuses, and they seem to work," explained economist Surendranath
Jory from the University of Sussex in Britain.
Nonetheless, the
short-term consequences for shareholders are dire. Chief executives
committing fraud or taking part in insider trading end up costing
shareholders dearly in the days following the news of the scandals.
However,
the negative effects did not last long. Three years on, the share-price
performance of the same firms matched those that had not been affected
by scandals.
If anything, the 80 companies in the study actually showed an improved operating performance in the years after a scandal.
The
researchers looked at the Return on Assets (ROA) score of the companies
in the study, as a measure of how efficient the firms were at using
their assets to generate earnings.
They found that those who had
survived a scandal involving their chief executive officer (CEO) had ROA
scored up to 10 per cent better than other rival companies.
The study was published in the journal of Applied Economics.