Burial objects” or “Birds of a feather”: The contagion effect of financial violations in business groups——The evidence from China

Shuonan Zhang, Yike Cai, Rongda Chen, Shengnan Wang, Xinyu Zhang and He Ren

Emerging Markets Review, 2024, vol. 62, issue C

Abstract: This study explores the conagion effect of financial violations within Chinese business groups from 2012 to 2021. Findings reveal that violations lead to stock price declines in member companies, with contagion primarily driven by irrational investor sentiment (“burial objects”) over the short term. The financial and governance characteristics of infected companies deteriorate (“birds of a feather”), but do not impact their long-term stock returns. Mitigating investor irrationality in infected companies helps curb contagion. This research contributes to business group governance and risk contagion theories, revealing a unique irrational contagion channel of financial violations within business groups in emerging markets.

Keywords: Financial violations; Business groups; Contagion effect; Investor sentiment (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:62:y:2024:i:c:s1566014124000803

DOI: 10.1016/j.ememar.2024.101185

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