SUBMISSIONS OPEN 1 JANUARY 2023

GUEST EDITORS:

- Carol Alexander, University of Sussex Business School

- Douglas Cumming, College of Business, Florida Atlantic University

- Jonathan Karpoff, Foster School of Business, University of Washington

There are many forms of corporate misconduct, including bribery, financial restatements and options backdating, and other forms of accounting fraud. Corporate misconduct is prevalent and costly. Estimates of reputation costs show that a firm loses 20-38% of a its value when misconduct is detected (Karpoff et al., 2008).

Likewise, there are many forms of misconduct in trading securities (Alexander and Cumming, 2020; Cumming et al., 2011). Insider trading violations can include insider tipping, frontrunning, violation of client precedence, and trading ahead of research reports. Forms of price manipulation include marking the open, marking the close, portfolio pumping with misleading end of the month/quarter/year trades designed to influence marks to market, intraday ramping/gouging, market setting, pre-arranged trades, influencing or rewarding the employees of others, intimidation/coordination, and domination and control of market segments. Market manipulators can also engage in spoofing, which includes giving up priority, switches, and layering of bids/asks. Trading volume can be manipulated through churning and wash trades. Financial misconduct also encompasses false disclosure, which includes the dissemination of false and misleading information, and parking/warehousing (hiding the true ownership of securities). Other types of misconduct include broker-agency relationships such as improper trade through, improper execution, improper member use of exchange name, improper sales materials and telemarketing, and improper dealing with customers. Financial market manipulation is costly in terms of losses in liquidity, equity values, and negative consequences for firms, affecting merger and innovative activities, among other things (Alexander and Cumming, 2020).

Fintech innovations have given rise to new forms of financial market misconduct, facilitated illegal corporate conduct, and spurred on a race to develop new regtech solutions with computerized surveillance.

Based on Google Scholar hits over the past decade (see graph), research on banking and finance has grown over the last decade by 98%. At the same time, research on corporate misconduct has grown by 175%. And research on manipulation and fintech has grown by 6,850% (see Bertsch et al., 2020 for a recent example on topic).

This special issue will emphasize new innovations in research into corporate misconduct that includes but is not limited to developments in fintech and regtech.

Some research questions that contributors to the special issue might address are:

- Has financial misconduct become more frequent and pronounced with developments in fintech?

- Has the Covid crisis exacerbated financial misconduct?

- Is financial misconduct exacerbated or mitigated under different types of investment and ownership, such as government, family, and/or institutional ownership, including venture capital, private equity, hedge funds, mutual funds, pension funds, and insurance companies?

- Which types of financial products are more often associated with financial misconduct?

- Has financial regulation and regtech kept pace to mitigate the frequency and severity of misconduct in recent years?

- To what extent does law, culture, and other national institutions explain international differences in expected or detected misconduct?

- What is the comparative importance of national culture versus corporate culture in explaining the frequency and severity of financial market misconduct?

- What institutional factors, such as law or politics, explain differences in the consequences of market misconduct across countries?

- What are best practices in regulatory design and enforcement that can lead to improved ethical standards and corporate governance?

- Does high frequency trading and other forms of fintech mitigate or exacerbate market misconduct?

- Does crowdfunding facilitate potential financial market misconduct?

- What is the role of crowdfunding and other digital finance platforms in performing due diligence and mitigating financial misconduct amongst entrepreneurs?

- How is fraud risk and corporate ethics properly and efficiently priced in markets?

- What is the link between ESG, sustainability, and financial misconduct?

- How does diversity affect financial misconduct, and should exchanges encourage minimum diversity requirements (such as the 2021 NASDAQ rule)?

- How does the risk of market misconduct affect corporate valuation?

- How is financial misconduct related to business cycles to different degrees around the world?

- Related research questions on both publicly traded and privately held institutions are welcome.

References:

Alexander, C., and D.J. Cumming, 2020. Corruption and Fraud in Financial Markets: Malpractice, Misconduct, and Manipulation. Wiley Press.

Bertsch, C., I. Hull, Y Qi, and X. Zhang, 2020. Bank misconduct and online lending, Journal of Banking & Finance 116, 105822.

Cumming, D.J., Johan, S.A., Li, D., 2011. Exchange trading rules and stock market liquidity. Journal of Financial Economics 99(3), 651-671.

Karpoff, J., Lee, D.S., Martin, G.S., 2008. The consequences to managers for financial misrepresentation. Journal of Financial Economics 88, 193-215.

To aid the development of papers a 2-day conference on the same theme is planned, at Florida Atlantic University, Boca Raton, FL, 10-11 December 2022. Submission deadline for the conference is 15 August 2022. Notification of acceptance into the conference will be sent on 15 September 2022. Acceptance in the conference is neither necessary nor sufficient for submission or acceptance to the JBF special issue.