DescriptionThis dissertation is consisted of two essays to study contagion effect. The first essay investigates the role of supply chain links in spread and detection of corporate frauds. We examine and find that firms are more likely to begin misconduct if their current customers or suppliers are cheating. The effects are both statistically and economically significant. This higher likelihood of engaging in misconduct could be to preserve the value of their relationship specific investment that loses value if the cheating customer gets discovered. We find no support for this Relationship Hypothesis. We also examine if greater exposure to wrongful practices in the supply chain encourages the diffusion of these practices and find support for this Exposure Hypothesis. Lastly, we examine if discovery of a cheating customer increases the likelihood of firm’s detection. We find that recent detected customer is associated with a higher likelihood of detection and a significantly lower time to detection providing strong support for the Detection Hypothesis. In the second essay, we focus on state spillover effects of defaults in municipal bond market over 2000 to 2014. We document a significant price decline, -2.98% around the default. The price declines are greater for revenue bonds and bonds with no credit enhancement. We also find that on average, the abnormal price change for non-defaulted bonds is about -1.1%. The reaction is bigger if the price change of defaulted bond is more negative or the portion of momentary defaults is higher. In addition, past defaults significantly raise the cost of new municipal borrowing from the same state. The evidence suggests that defaults are not rare, and have a significant negative effect on all municipal issuers from the same state.