Intra-Industry Effects of Corporate Scandal Announcements: Evidence from China
نویسندگان
چکیده
This paper investigates the variation in contagion effect of corporate scandals on peers firms with different corporate governance quality. We find that better corporate governance reduces investors’ uncertainty about a firm’s fundamental value and alleviates the contagion effect of scandals. Specifically, the empirical results show that external governance, ownership structure and external auditors play important roles to reduce the contagion effect of corporate fraud announcement while board characteristics do not. We also find that external governance and ownership take stronger effect in reducing the contagion effect of non-financial fraud, while quality of auditors plays more pronounced role to mitigate contagion effect in financial fraud. Opposite to the prior studies, we find contagion effect in highly competitive industries and competitive effect in industries with low competition. Keyword: corporate scandals; contagion effect; corporate governance; industry competition
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