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Asper assistant professor of finance investigates fraud deterrence in underexamined markets

Jianning Huang examines investor protections and regulatory spillover in FT 50 publication

November 10, 2023 — 

Asper School of Business assistant professor of finance Jianning Huang has published a paper in Review of Accounting Studies. As a Financial Times 50 journal, Review publishes exceptional work that meets their high standards of academic rigor, impact and distinction. Co-authored with Richard A. Cazier and Fuzhao Zhou, the paper examines how regulation affects the prevalence of fraud in over-the-counter (OTC) stock markets.

While most stocks are traded through major stock exchanges like the Nasdaq or New York Stock Exchange, OTC firms are not listed on these exchanges. Despite existing outside of major stock exchanges, the OTC market is vast, with daily dollar volume of $1.5 billion as of 7 November 2023.

Huang explains why these substantial OTC markets can be particularly susceptible to fraud.


“The information environment of OTC markets is very different from publicly listed firms. Much of the trading and stock information is not readily disclosed by OTC firms. This makes it difficult for investors to conduct their analysis before buying in, which creates potential opportunities for fraudsters,” says Huang.



The stock prices of many OTC firms also fluctuate more dramatically than exchange-traded stocks. Combined, the susceptibility of OTC stocks to large price swings and the low level of firm disclosure can make OTC firms ripe for fraud and pose additional challenges to regulators, researchers and retail investors.

In their paper, Huang and co-authors assess the impact of Operation Shell-Expel, an initiative launched by the Securities and Exchange Commission (SEC) in 2012 to reduce OTC market fraud. The initiative targeted companies that appeared dormant, proactively suspending their operations until they could prove their legitimacy.

Despite others’ criticism of Operation Shell-Expel and doubts about its efficacy, Huang and co-authors hypothesized that the initiative does successfully reduce fraud overall.

“First, we looked at the impact on firms that were suspended,” he explains. “We then looked at other firms with headquarters in the same state as the suspended firms. We found that when suspect firms were proactively suspended, fraud decreased overall at the state level.”

In other words, regulation of one firm “spills over” to reduce fraud among firms in the same state.

Huang, who has been at the Asper School of Business for just over a year, also expresses his appreciation for the School’s research support.

“Asper has been very helpful with funding and resources for new faculty members, which allows me to pursue my research. The Stu Clark Distinguished Speaker Series is particularly impressive, and I’ve been able to invite renowned scholars, including Dr. Andrew Stark, Emeritus Professor, Alliance Manchester Business School, University of Manchester and Dr. Waymond Rodgers, Professor, Woody L. Hunt College of Business, University of Texas at El Paso, to share their work and connect with Asper researchers.”

The Stu Clark Distinguished Speaker Series is supported by a generous endowment from Asper School of Business alumnus Stu Clark [BComm/76]. The Series invites prominent researchers from outside of UM to give research seminars and engage with faculty and graduate research students. Upcoming presenters include Jean-Philippe “JP” Vergne, Associate Professor, UCL School of Management, who will discuss the dispersion of information and decision-making on decentralized platforms like the “Metaverse.”

The Asper School of Business supports research like Huang’s that makes an impact.

His research attends to a growing population of retail investors—who are entering the markets earlier and engaging more than ever. Through his work, he contributes to a better market environment, one that allows individual investors to make informed investments in the OTC market and allows policymakers to strike a balance between deterring fraud and fostering growth.

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