TY - JOUR
T1 - The effects of reputational sanctions on culpable firms
T2 - Evidence from China's stock markets
AU - Huang, Robin Hui
AU - Zhang, Linhan
N1 - Funding Information:
This research receives funding support from the Hong Kong Research Grants Council’s Humanities and Social Sciences Prestigious Fellowship Scheme , ‘Cross-border Listings and Regulatory Responses: Chinese Experiences and International Implications’ (project number: CUHK 34000322 ). We are grateful for the valuable comments on earlier drafts of this paper from Zhaoyang Gu, Wei Zhang, James Si Zeng, Wenmin Xu, Haitian Lu, and Enyuan Li. Thanks also to the people who took time to participate in the interview exercise we conducted for this research project
Publisher Copyright:
© 2023 Elsevier Inc.
PY - 2023/9
Y1 - 2023/9
N2 - We examine an important yet understudied form of reputational sanction in China, namely public criticisms imposed on culpable firms by the Chinese stock exchanges from 2013 to 2018. We find significantly negative cumulative abnormal returns around the announcement date, and they were affected by several factors, including financing propensity, governance mechanism, and equity nature. However, the market reaction is significantly negative only for firms relying on external financing and non-state enterprises, and importantly, becomes insignificant in cases where the firm had self-exposed misconduct before the official announcement of public criticism. Further, we examine other effects of public criticism, finding that public criticism does not improve firms’ long-term values, nor produce strong deterrence to change their behaviour. Overall, the evidence of the effects of public criticism on culpable firms is mixed, suggesting that reputational sanction is a weak, if not ineffective, instrument of market regulation in China.
AB - We examine an important yet understudied form of reputational sanction in China, namely public criticisms imposed on culpable firms by the Chinese stock exchanges from 2013 to 2018. We find significantly negative cumulative abnormal returns around the announcement date, and they were affected by several factors, including financing propensity, governance mechanism, and equity nature. However, the market reaction is significantly negative only for firms relying on external financing and non-state enterprises, and importantly, becomes insignificant in cases where the firm had self-exposed misconduct before the official announcement of public criticism. Further, we examine other effects of public criticism, finding that public criticism does not improve firms’ long-term values, nor produce strong deterrence to change their behaviour. Overall, the evidence of the effects of public criticism on culpable firms is mixed, suggesting that reputational sanction is a weak, if not ineffective, instrument of market regulation in China.
KW - Chinese stock markets
KW - Corporate governance
KW - Public criticism
KW - Regulatory enforcement
KW - Reputational sanctions
UR - http://www.scopus.com/inward/record.url?scp=85163717721&partnerID=8YFLogxK
U2 - 10.1016/j.irle.2023.106152
DO - 10.1016/j.irle.2023.106152
M3 - Article
AN - SCOPUS:85163717721
SN - 0144-8188
VL - 75
JO - International Review of Law and Economics
JF - International Review of Law and Economics
M1 - 106152
ER -