Institutional investors who have experienced corporate fraud develop tools to sniff out future wrongdoing and become much more active in corporate governance.
In a recent study from Harvard Business School, assistant professor and author Trung Nguyen found that institutional investors who have owned a security that has later been the victim of corporate fraud and financial misconduct what Nguyen calls “treated” investors are more likely than peers who have not had the experience to avoid the securities of suspicious companies in the future. In fact, investors who have lost money from bad corporate actors become much more active in governance at the companies they own in the future. Well governed companies are more transparent and accountable to shareholders.