Liping Lu (Renmin University of China) - Corporate discredit with Chinese characteristics: Evidence from postings by the Supreme Court of China

Co-authors: Pengfei Li (Shanghai University of Finance and Economics) and Yiping Wu (Shanghai University of Finance and Economics)

The postings of discredit by new media can affect corporate behaviors. We examine the postings of discredit by the Supreme Court of China on the financing, investment, and corporate valuation of Chinese listed firms. We find that postings of discredit are negatively associated with the growth rate of bank loans. This effect is more pronounced for small and private firms without political connection. In addition, this effect is more pronounced firms in regions with better legal environment and lower costs of contract enforcement. We also find a negative impact of corporate discredit on corporate investment, growth and profitability. Our results are robust to the parallel trend test, placebo test, and the sample coverage issues. This paper provides supporting evidence for the role of government media in disciplining corporate discredit in the context of poorly developed financial and legal system as China.

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