I found the following tidbit buried in a news story about the HP pretexting scandal:
Hewlett-Packard Chairwoman Patricia Dunn took the fall Tuesday after admitting she authorized an investigation that relied on “inappropriate techniques” to uncover who was leaking boardroom secrets to the media.
CEO Mark Hurd, who has the respect of Wall Street and is untainted by the investigation at the Palo Alto-based computer and printer maker, will take over, vowing that the probe’s methods “have no place in HP.” HP’s stock rose to a 52-week high.
It makes perfect sense that a company’s stock might partially rebound from a scandal-induced loss if the comany takes firm steps to deal with the wrongdoers, recognizes the wrongdoing, and clearly signals that it will be conforming to a higher standard of behavior from now on. But why would Wall Street value HP more highly than it did before it even knew about the scandal? Some possibilities:
The Street regarded Dunn as ineffectual and is now celebrating her ouster, whatever the reasons.
There’s no such thing as bad publicity; once the specific problems have been dealt with, being in the news is in itself a good thing for HP.
Wall Street already knew about the pretexting before the news broke publicly, and so had already factored the bad news into the stock price. Only the good half of the news was a surprise.
Something else independently happened to make HP more valuable.
Herding behavior is overwhelming rational responses.
Or perhaps, the best answer is “none of the above.” A quick glance at the stock chart for HPQ shows that that “52-week high” was followed by a fifty-cent dropoff in the afternoon; when trading opened the next morning, HPQ was trading almost a full dollar lower.