DefinePK

Abstract

This study investigates how investors react to corporate fraud announcements by analyzing stock returns, trading volume, and market liquidity in an integrated framework. Using a sample of 57 non-financial firms listed on the Pakistan Stock Exchange that were declared fraudulent by the Securities and Exchange Commission of Pakistan, the research applies a Three-Stage Least Squares (3SLS) model to examine the simultaneous relationships among key market indicators. Additionally, an event study approach is used to assess abnormal market behavior over short and intermediate time windows surrounding the fraud disclosure. The findings reveal significant and persistent negative returns, heightened trading activity, and deteriorated liquidity following fraud events. These results underscore the interconnected nature of investor responses and the long-term financial consequences of corporate misconduct, particularly in emerging markets with weak governance frameworks