Stock Market Reaction to Corporate Crime: Evidence from South Korea

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This paper examines the impact of corporate crime on the stock market in South Korea. Specifically, we examine the effect of crime type (white-collar vs. street crime, operational vs. financial), industry type (financial vs. industrial), business group affiliation (chaebol-affiliated vs. non-chaebol-affiliated), and corporate governance (strong vs. weak board structure index) on the relationship between corporate crime announcement and stock market reaction. We find negative reactions to stock prices around the announcements of corporate crimes but no significant difference in reactions between announcements of individual and organizational crimes. Individual white-collar crimes have a stronger negative impact on stock prices than do individual street crimes on average, while financial crimes have a significantly greater negative impact than do operational crimes in organizations. Moreover, financial sector firms are impacted more significantly by the announcement of corporate crimes than are non-financial firms. In addition, the stock prices of chaebol-affiliated firms decrease less than do those of non-chaebol-affiliated firms, and those with a higher board committee subindex seem to be influenced less by news of corporate crimes if the size control variable is excluded. Multivariate cross-sectional analyses show consistent findings after controlling for firm-specific factors, crime-type effect, and industry and year effects. The results of this study provide valuable insights because it covers several types of corporate crime, including those committed by individuals and those perpetrated by firms.
Publisher
SPRINGER
Issue Date
2017-06
Language
English
Article Type
Article
Keywords

INDIAN BUSINESS GROUPS; WHITE-COLLAR CRIME; EMPIRICAL-EXAMINATION; REPUTATIONAL PENALTY; GROUP AFFILIATION; EMERGING MARKETS; FIRM REPUTATION; BOARD STRUCTURE; BEHAVIOR; GOVERNANCE

Citation

JOURNAL OF BUSINESS ETHICS, v.143, no.2, pp.323 - 351

ISSN
0167-4544
DOI
10.1007/s10551-015-2717-y
URI
http://hdl.handle.net/10203/224895
Appears in Collection
MG-Journal Papers(저널논문)RIMS Journal Papers
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