Abstract
Summary Additionally to the financial crisis causing a world recession, Liechtenstein’s financial sector has been challenged by the so-called “Zumwinkel-Affair”, when a whistle-blower sold data of hundreds of tax evaders to international tax authorities. This paper investigates the impact of this affair on the daily stock prices of banks from Liechtenstein. An unconventional augmented GARCH-model (labelled as “augmented amalGARCH”), which outperforms conventional models, is introduced and dynamically analyses various influences on risk and returns. Also, an event study framework is applied. The main finding beyond further conclusions is that the Zumwinkel-Affair had an (accumulating) effect on risk, but surprisingly no impact on average stock return could be detected.
Highlights
On February 14th 2008, German authorities arrested Klaus Zumwinkel, Chief Executive Officer and Chairman of Deutsche Post, in a very spectacular way at his home and in front of several TV-cameras: He was accused of tax evasion and subsequently resigned from office just a few days afterwards
The lag-lengths in the mean and variance equation have been determined with respect to the information criteria by Akaike (1974) and Schwarz (1978), keeping in mind the conditions for a valid Generalized Autoregressive Conditional Heteroskedasticity (GARCH)-model and the significance of the GARCH-coefficients
11 The information criteria clearly suggest a parsimonious amalGARCH(0,1,1)-specification for both stocks
Summary
On February 14th 2008, German authorities arrested Klaus Zumwinkel, Chief Executive Officer and Chairman of Deutsche Post, in a very spectacular way at his home and in front of several TV-cameras: He was accused of tax evasion and subsequently resigned from office just a few days afterwards. Combined with the already severe economic aftermath of the financial crisis, the affair was a strong challenge especially for the financial sector and for Liechtenstein’s entire economy This contribution puts emphasis on the analysis and quantification of the Zumwinkel-Affair’s impact on Liechtenstein’s financial sector caused by the immediate consequences of the data theft (shock and irritation of markets and investors) and by the affair’s mid-term influences such as political pressure, capital outflows, transformation reforms and tax exchange agreements. This particular affair is of interest itself, but more importantly a good example for the effects of a revelation of tax evasion on stock markets and investors’ behaviour in general.
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