Investor reactions to food safety incidents: Evidence from the Chinese milk industry |
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| Institution: | 1. School of Economics, Huazhong University of Science and Technology, Wuhan 430074, China;2. School of Economics and Trade, Guangdong University of Foreign Studies, Guangzhou 510006, China;3. College of Environmental Sciences and Engineering, Peking University, Beijing 100871, China;1. Huazhong University of Science and Technology, People''s Republic of China;2. Cambridge Judge Business School, University of Cambridge, Trumpington Street, Cambridge CB2 1AG, United Kingdom;3. Hong Kong Baptist University, Hong Kong SAR, People’s Republic of China;1. Zhongnan University of Economics and Law, China;2. Central University of Finance and Economics, China |
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| Abstract: | Using a natural experiment in the Chinese milk industry as background, this paper investigates the reactions of individual and institutional investors to food safety incidents. By classifying firms as either honest or dishonest, we find that: First, honest firms significantly outperform dishonest ones and receive more investment flow. Second, individual investors react to incidents more negatively and intensely, especially toward dishonest firms, compared with institutional investors. This study offers important policy implications: First, our findings directly suggest that the government should enact appropriate policies to strengthen food safety and protect consumers’ health. Second, the government should implement efficient mechanisms to strengthen firms’ incentives to participate in social responsibility activities. Third, having institutional investors as corporate monitors is not a sufficient substitute for legal penalties. |
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| Keywords: | Food safety incidents Investor reaction Firm values Event study Difference-in-differences |
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