To gain insight into the costs and benefits associated with internal control protocols, this paper examines the market response to allegations that firms have engaged in financial fraud, bank and wire fraud, billing fraud, embezzlement, bribery and kickback schemes. These allegations are investigated as they represent cases most closely related to the treasurer's mandate of financial controls, payment execution and oversight of cash. The study finds that, on average, allegations of misconduct result in statistically significant losses in firm value and increases in total risk (or increases in firms' cost of capital). The results are found to be sensitive to the type of misconduct investigated.
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