This paper investigates the impact of corporate prosecutions on firm’s cash holdings and investment. Using a unique prosecution data from Corporate Prosecution Registry compiled by Duke University School of Law and the Legal Data Lab at the University Virginia, I find that companies experience negative abnormal returns when information regarding their prosecutions is announced or known to the public. More importantly, companies significantly reduce their capital investment, but increase their cash holdings after the prosecutions are known to the public. The risk associated with prosecuted firms also increase, and prosecuted firms experience increased cost of debt financing after the prosecutions. 

Keyword: Corporate prosecution, cash holdings, capital investment, uncertainty, risk, and cost of debt