Research Impacts - Studies

Public Believes Financial Fraud Rampant, But Majority Still Have Confidence In The Stock Market, Survey Finds

Release Date: 7/8/2002
The overwhelming majority of "Main Street" American investors (71%) believe the problems in financial reporting are widespread and not limited to a small number of companies or individuals. Most investors (69%) also agree that they "don't trust businesses' financial reporting any more."

Yet, despite the battered stock market and a crisis of confidence in the current market, a majority of investors (56%) still say that stocks will be an "excellent" or "good" investment long-term. Only 11% say the stock market will be a "poor investment" over the long haul.

These are the key findings of a nationwide survey of investors by the New York-based strategic market research and consulting firm Schulman, Ronca & Bucuvalas, Inc. (SRBI). The survey followed on the heels of a parade of revelations about financial wrongdoing involving Enron, Arthur Anderson, Adelphia Communications, WorldCom, Xerox and other companies.

The SRBI study interviewed by telephone a random national sample of 300 investors holding stocks, bonds, and mutual funds, June 28 - July 1.

Investor Reaction: Hold, Not Sell

While most investors (71%) are not planning to invest additional dollars in the market in the next few months, only a scant 6% say that they have bailed out of any stocks and mutual funds because of the ongoing scandals.

Investor portfolios were clearly hurt by the stock markets gyrations over the past year. More than 6 in 10 (61%) report that the value of their portfolios has decreased during this period. About 1 in 10 investors owned stocks in the companies involved in the financial scandals. About 2 in 3 (68%) feel that they'll have difficulty achieving their financial objectives over the next few years.

"The surprise here is not the crisis of confidence in the current market," commented Mark A. Schulman, president of Schulman, Ronca, & Bucuvalas, Inc. "More surprising and perhaps reassuring are that many Main Street investors still cling to the traditional notion that the stock market is the place to be over the long term. In spite of the battered state of their portfolios and ongoing scandals, many investors are still able to take a more positive longer-term view."

Who's to Blame?

As President George W. Bush prepares his speech on corporate wrongdoing, the investing public places blame for the scandals squarely on shoulders of high-level corporate executives (80% "great deal of blame"), corporate boards (53% "great deal of blame") and accounting firms (51% "great deal of blame"). As the political jousting begins over who's responsible, few investors at this point blame President Bush (14%), the U.S. Congress (17%), the Clinton Administration (17%), or government agencies that regulate the securities markets (30%).

While less than 3 in 10 (28%) blame the brokerage firms "a great deal" for the scandals, a majority (57%) say that they have little (39%) or no (18%) confidence in the recommendations of brokerage firms.

Solutions: Prosecute Corporate Officers

As for solutions, almost all investors believe that prosecuting corporate officers for "financial fraud" would be a "very" (69%) or "somewhat effective" (23%) solution. About 7 in 10 (71%) also believe that "making it easier for investors to sue corporate officers for financial fraud" would be "very" (41%) or "somewhat effective" (30%) in combating wrongdoing.

Almost all investors (92%) want executive managers of corporations to "begin speaking out more strongly" about this problem.

The investing public is more divided over the need for more government oversight. Just less than half (49%) say that the government should be more involved "in oversight of financial reporting by companies," while 40% say that the "business community should put its own house in order, without more government involvement."

Investors do want more government oversight of the accounting industry. Almost 9 in 10 investors (88%) agree "the accounting industry needs to be watched more closely by the U.S. Securities and Exchange Commission."

"Clearly, investors are not in a forgiving mood when it comes to solutions to financial fraud," Schulman commented. "A very effective solution will be to make corporate officers criminally liable for financial fraud committed by the company."


This random national survey of 300 persons who are invested in stocks, bonds, mutual funds was conducted by Schulman, Ronca, & Bucuvalas, Inc. (SRBI), a financial strategy consultancy based in New York City. Interviewing, by telephone, was conducted June 28 through July 1, 2002. Households were screened to determine if they qualified. The sampling error is approximately +/- 5.7 percentage points at the 95% confidence level. Random surveys are also subject to other sources of error. A complete set of interview questions can be found below.  

National Survey