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Institutions and Corporate Reputation: Evidence from Public Debt Markets

Author

Listed:
  • Xian Gu

    (Durham University)

  • Iftekhar Hasan

    (Fordham University, Bank of Finland, and University of Sydney)

  • Haitian Lu

    (The Hong Kong Polytechnic University)

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.

Suggested Citation

  • Xian Gu & Iftekhar Hasan & Haitian Lu, 2023. "Institutions and Corporate Reputation: Evidence from Public Debt Markets," Journal of Business Ethics, Springer, vol. 183(1), pages 165-189, February.
    • Handle: RePEc:kap:jbuset:v:183:y:2023:i:1:d:10.1007_s10551-021-05020-x
    DOI: 10.1007/s10551-021-05020-x
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    More about this item

    Keywords

    Corporate reputation; Trust; Legal environment; Social capital; Litigation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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