This study investigates reputational penalties for two main types of corporate scandals in China: accounting scandal vs. corruption. Compared with U.S. firms that experienced an average of 41% drop in firm value if accounting scandal was disclosed, I find that accounting scandals are less destructive to firm value in a relationship-based economy such as China. However, while pure accounting scandals are relatively innocuous in China, I find that corruption charges against the firms' senior executives have serious consequences. I explore several explanations for such difference in market reaction to the two types of scandals, including political network effect, accounting write-off effect, corporate governance effect, incentive effect, and executive turnover effect. My empirical evidence provides consistent support to the political relationship explanation which indicates that the damaged social and political networks and the ability to contract caused by the corruption charges would have a more negative impact on firms' operations and performances. Although my results do not fully eliminate all the other alternative explanations, they are likely to be a less important reason for the stronger reputation penalties for corruption charges than accounting scandals in China. / Zhang, Fang. / Adviser: T.J. Wang. / Source: Dissertation Abstracts International, Volume: 72-11, Section: A, page: . / Thesis (Ph.D.)--Chinese University of Hong Kong, 2009. / Includes bibliographical references (leaves 60-61). / Electronic reproduction. Hong Kong : Chinese University of Hong Kong, [2012] System requirements: Adobe Acrobat Reader. Available via World Wide Web. / Electronic reproduction. [Ann Arbor, MI] : ProQuest Information and Learning, [201-] System requirements: Adobe Acrobat Reader. Available via World Wide Web. / Abstract also in Chinese.

The other study distinguishes the effects of political connection and governmental intervention on firm value. The event study of 371 scandals from 1997 to 2004 confirms the hypothesis that governmental intervention is the de facto reason. Scandal firms controlled by the state sustain less negative cumulative abnormal returns than non-state controlled firms, because the market expects that those state controlled scandal firms will surely receive governmental bailout or support while those non-state controlled ones not. For state controlled samples, the degree of political connection does not produce any significant effect on the market reactions. For non-state controlled scandal firms, however, closely politically connected firms have more negative CAR than loosely politically connected ones. This is because the governments get away from the scandal firms in trouble, and those non-state controlled firms that once gained the governmental intervention via political connection suffer more as the support withdraws. The results highlight the effect of governmental intervention on the firm valuation, and address a misconception that political connection is the source of firm value. / The thesis includes two empirical studies concerning corporate scandals in China. One investigates the intra-industry effect of 356 scandals from 1997 to 2004. The empirical results show that contagion effect and competitive effect are conditioned by degree of industry competition and ownership type of scandal firms. Because state controlled firms dominate in most industries and share common characteristics as the legacy of planned economy, their scandals can typically reveal the industry wide information on poor corporate governance problem. In highly competitive industries, the negative information of state controlled scandal firms spills over to state controlled peers, creating net contagion (negative) effect. In low competitive industries, contagion effect is offset by competitive effect that mainly stems from non-state controlled rivals. Comparatively, non-state controlled scandal firms, because of their marginal status in the market, do not produce evident externality in the industry. This study supports the hypothesis of informational contagion effect, and contrasts with the traditional view that scandals are idiosyncratic. The conclusions in previous studies are biased because they fail to consider the role of ownership on intra-industry effects. / Zhang, Peng. / "August 2007." / Adviser: Larry H. P. Lang. / Source: Dissertation Abstracts International, Volume: 69-08, Section: A, page: 3259. / Thesis (Ph.D.)--Chinese University of Hong Kong, 2007. / Includes bibliographical references (p. 109-113). / Electronic reproduction. Hong Kong : Chinese University of Hong Kong, [2012] System requirements: Adobe Acrobat Reader. Available via World Wide Web. / Electronic reproduction. [Ann Arbor, MI] : ProQuest Information and Learning, [200-] System requirements: Adobe Acrobat Reader. Available via World Wide Web. / Abstracts in English and Chinese. / School code: 1307.