Corporate Governance

Corporate Governance. Empirical studies show a negative stock-price reaction for firms mentioned in Wall Street Journal announcements of law enforcement activities of three federal agencies: the Department of Justice (DOJ), Federal Trade Commission (FTC), and Securities and Exchange Commission (SEC). Evidence of negative stock market wealth effects exist for a variety of enforcement activities including: informal investigations, formal investigations, lawsuits and settlements.
A. Explain how actual or threatened legal action can act as a type of external corporate control mechanism.
B. Explain how the valuation effects of federal law enforcement actions can be expected to differ across firms according to the relative importance of intangible factors in firm valuation.

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