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Corporate Governance, Political Connections, and Intra‐Industry Effects: Evidence from Corporate Scandals in China
Author(s) -
Yu Xin,
Zhang Peng,
Zheng Ying
Publication year - 2015
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12064
Subject(s) - corporate governance , spillover effect , china , business , state ownership , politics , accounting , quality (philosophy) , audit , state (computer science) , market economy , financial system , monetary economics , economics , finance , emerging markets , political science , law , macroeconomics , philosophy , epistemology , algorithm , computer science
This paper investigates intra‐industry spillover effects of corporate scandals in China. We demonstrate how a contagion effect spreads to peer firms depending upon the quality of corporate governance and their political connections. Good corporate governance in peer firms reduces the contagion effect of scandals. External governance has a stronger influence on reducing the contagion effect of both financial and non‐financial scandals, while ownership concentration and the quality of auditors play a more pronounced role in mitigating the contagion effect of financial scandals. State ownership helps to mitigate the negative influence of non‐financial scandals in individual‐owned firms, but not in state‐owned enterprises.