Institutions and Corporate Reputation: Evidence from Public Debt Markets

Xian Gu (), Iftekhar Hasan and Haitian Lu ()
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Xian Gu: Durham University
Haitian Lu: The Hong Kong Polytechnic University

Journal of Business Ethics, 2023, vol. 183, issue 1, No 9, 165-189

Abstract: Abstract Using data from China’s public debt markets, we study the value of corporate reputation and how it interacts with legal and cultural forces to assure accountability. Exploring lawsuits that change corporate reputation, we find that firms involved in lawsuits experience a decrease in bond values and a tightening of borrowing terms. Using the heterogeneities in legal and social capital environments across Chinese provinces, we find the effects are more pronounced for private firms, firms headquartered in provinces with low legal protections, and firms headquartered in provinces with high social capital. The results show that lawsuits that allege misconduct are associated with reputational penalties and that such penalties serve as substitutes for legal protections and as complements to cultural forces to provide ex post accountability and motivate ex ante trust.

Keywords: Corporate reputation; Trust; Legal environment; Social capital; Litigation (search for similar items in EconPapers)
JEL-codes: G12 G14 L14 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10551-021-05020-x

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