Make it Right: Regulatory Intervention in Managers’ Misconduct and Corporate Risk

Feng He (), Hanyu Du (), Youwei Li and Jing Hao ()
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Feng He: Capital University of Economics and Business
Hanyu Du: Nankai University
Jing Hao: Capital University of Economics and Business

Journal of Business Ethics, 2025, vol. 202, issue 1, No 5, 73-95

Abstract: Abstract Regulatory intervention is important in shaping corporate behaviour, especially in markets with relatively weak property rights. Using a sample of publicly listed companies in China from 2006 to 2021, this study investigates the impact of regulatory intervention in managers’ misconduct on the corporate idiosyncratic risk. Using a difference-in-differences design, we explore the idiosyncratic risk change after inspections of a manager’s misconduct to that of their counterparts who are not involved in misconduct activities. We find that inspections of corporate managers’ misconduct significantly reduce their firms’ risk by reducing investors’ heterogeneous beliefs and improving corporate transparency. This effect is more pronounced in firms with lower levels of information transparency and greater external attention pressure, suggesting that regulatory interventions could improve corporate information environment.

Keywords: Manager misconduct; Corporate risk; Corporate transparency; M14; G32; G14 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10551-025-05934-w

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