2026 Undergraduate Research Showcase

The Incentives of Corporate Misconduct

Document Type

Student Presentation

Presentation Date

4-24-2026

Faculty Sponsor

Dr. Rafael Ribas

Abstract

Our study investigates how corporate misconduct, particularly human rights violations, impacts firm value through stock market reactions. We additionally investigate the incentives for such misconduct. We plan to answer the question, “What are the market based incentives for misconduct?”, measuring how firms respond to misconduct before and after getting caught.

Using an event study model, we measure cumulative abnormal returns (CAR) of specified firms surrounding the release of negative, shocking misconduct news. We analyze a firm’s typical stock behavior through the Capital Asset Pricing Model (CAPM) and the Fama-French Five Factor model to account for market factors and risk factors.

The analysis combines over 3.5 million daily stock observations from the CRSP online database with a large dataset of misconduct news events. These events were web scraped from the Business and Human Rights Resource Centre and classified using natural language processing techniques. After extensive filtering, the final sample includes thousands of “shocking” negative events across approximately 780 publicly traded U.S. firms from 2000 to 2025.

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