Punishment by Securities Regulators, Corporate Social Responsibility and the Cost of Debt

Guangming Gong (), Xin Huang (), Sirui Wu (), Haowen Tian () and Wanjin Li ()
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Guangming Gong: Business School of Hunan University
Xin Huang: Business School of Hunan University
Sirui Wu: Business School of Hunan University
Haowen Tian: Xi’an Jiaotong University
Wanjin Li: Business School of Hunan University

Journal of Business Ethics, 2021, vol. 171, issue 2, No 8, 337-356

Abstract: Abstract This study examines whether penalties issued to Chinese listed companies by securities regulators for violations of corporate law affect the cost of debt, and the moderating role of corporate social responsibility (CSR) fulfillment on this relationship. Our sample consists of firms listed on Shanghai and Shenzhen stock exchanges from 2011 to 2017 and the data are collected from the announcements of China Securities Regulatory Commission. The findings are as follows: (1) punishment announcements by regulatory authorities increase the cost of debt; and (2) the effect of punishment announcements on the cost of debt is partially offset by prior CSR performance. These findings are shown to be robust. The reputation insurance effect of CSR is more pronounced in state-owned enterprises and in an institutional environment with low marketization, a weak legal environment, and low information transparency. The findings support the reputation insurance hypothesis of CSR and employ the cost of debt as a governance mechanism.

Keywords: Administrative punishment; Corporate violation; Debt financing; Corporate social responsibility (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (53)

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DOI: 10.1007/s10551-020-04438-z

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