State ownership and market reactions to misconduct announcements of Chinese listed firms: a legitimacy perspective

Figures & data

Table 1. Variable measurement.

Variables	Variable name	Description	Source
Dependent variables	CARs	Cumulative abnormal returns are measured over four event windows.	Event study
	Misconduct	Equals to one if a firm is announced engaging in a(multiple) misconduct case(s) and zero otherwise	CSMAR
Independent variables-misconduct	Previous	Equals to one if a firm has committed misconduct in the prior three years and zero otherwise.	CSMAR
	Institutional ownership	The number of shares held by the institutional investors divided by the total number of shares outstanding	CSMAR
	Equity	Equals to one if a firm is state-owned and zero otherwise.	CSMAR
	ROA	Return on assets	CSMAR
	DAR	The debt-to-assets ratio	CSMAR
	Board size	The number of board members.	CSMAR
	Size	The natural logarithm of the firm’s total assets.	CSMAR
	Duality	Equals to one if the CEO is the chairman of the board and zero otherwise.	CSMAR
Independent variables-CARs	State ownership	The equity shares of the largest state shareholder in a listed company divided by the total number of shares outstanding	CSMAR
	Affiliation level	This variable ranges from 0 to 5. When the firm affiliates with central government, it receives a value of 5. When the firm affiliates with provincial government, it corresponds to level 4. City or municipal government corresponds to level 3. District government or county government is assigned with level 2. Street, community, or township government corresponds to level 1. If a firm is privately-owned, the affiliation level is level 0.	CSMAR
	Industry Regulation	Equals to one if a firm is located in a regulated industry and zero otherwise. Based on the 2012 industry classification criteria of the CSRC, we finally identify the regulated industries as petroleum processing, coking and nuclear fuel processing industry (C25), chemical raw materials and chemical products manufacturing industry (C26), railroad, ship, aerospace and other transportation equipment manufacturing industry (C37), electricity, heat, gas and water production and supply industry (Class D), transportation, storage and postal industry (Class G) , monetary and financial services (J66), insurance (J68), and press and publication (R85).	CSRC
	Punishment	The value of this variable ranges from one to eight, corresponding to the severity level of eight penalties by the CSRC.	CSMAR
	Industrial Misconduct	The number of misconduct cases in the same industry.	CSMAR
	Regulatory Body	CSRC central office takes the value of 3, Shanghai or Shenzhen Securities Regulatory Commission takes the value of 2, CSRC regional office takes the value of 1.	CSMAR
	Category	Dummy variable corresponding to four types of misconduct, classified as financial misconduct (fictitious profits, etc.), documenting misconduct (false entries, etc.), disclosure misconduct (delayed disclosure, etc.), and stock manipulation misconduct (illegal stock trading, etc.).	CSMAR

Source: Author’s own.

Table 2. Descriptive statistics.

Variables	Observations	Mean	Std.Dev.	Min	Max
Panel A: the first stage, Probit model
MISCONDUCT	30683	0.098	0.297	0	1
Previous	30683	0.176	0.381	0	1
Institutional	30683	0.448	0.247	0	0.929
Equity	30683	0.374	0.484	0	1
ROA	30683	0.057	0.153	−0.939	0.405
DAR	30683	0.434	0.218	0.051	0.979
BOARD	30683	8.634	1.834	0	21
SIZE	30683	22.14	1.513	13.08	31.14
DUALITY	30683	0.268	0.443	0	1
Panel B: the second stage, OLS regression
CAR10	3076	−0.023	0.114	−0.837	1.357
CAR15	3024	−0.032	0.136	−1.299	1.240
CAR20	2997	−0.042	0.155	−1.423	1.200
CAR30	2962	−0.057	0.181	−1.191	1.045
State ownership	3076	0.094	0.172	0	0.847
Affiliation level	3076	0.572	1.426	0	5
Industry regulation	3076	0.057	0.232	0	1
ROA	3076	−0.033	0.597	−3.269	10.66
DAR	3076	0.483	0.256	0.001	3.919
Board size	3076	8.401	1.736	4	18
Size	3076	22.22	1.331	17.64	29.41
Duality	3076	0.282	0.450	0	1
Punishment	3076	1.538	1.161	1	6
Industrial misconduct	3076	153.6	107.9	1	339
Regulatory body	3076	1.629	0.564	1	3

Source: Author’s own.

Table 3. Correlations.

Variables		1	2	3	4	5	6	7	8	9	10	11	12	13	14	15
1	CAR10	1
2	CAR15	0.8141*	1
3	CAR20	0.6958*	0.8591*	1
4	CAR30	0.5631*	0.6869*	0.7955*	1
5	SO	0.0291	0.0367*	0.0486*	0.0593*	1
6	AL	0.0382*	0.0248	0.0301	0.0308	0.5715*	1
7	IR	0.0227	0.0201	0.0184	0.018	0.3885*	0.2416*	1
8	ROA	0.0561*	0.0512*	0.0751*	0.0630*	0.0117	0.0162	−0.033*	1
9	DAR	−0.0263	−0.0118	−0.023	−0.0121	0.2399*	0.1541*	0.1198*	−0.215*	1
10	Board	−0.0141	0.0054	0.0357*	0.0391*	0.2182*	0.1791*	0.1251*	0.1066*	0.1374*	1
11	Size	0.0215	0.015	0.0099	0.0152	0.2836*	0.2282*	0.1468*	−0.0253	0.4729*	0.2850*	1
12	Duality	−0.0085	−0.01	−0.0043	−0.0366*	−0.2167*	−0.1531*	−0.1132*	0.0112	−0.151*	−0.1604*	−0.135*	1
13	Punishment	−0.0277	−0.0146	−0.0246	−0.0168	0.0374*	0.008	0.0465*	−0.0122	0.032	−0.01	−0.036*	−0.0208	1
14	IM	0.0113	0.0026	0.013	0.0087	−0.1645*	−0.1141*	−0.065*	−0.0101	−0.1407*	−0.1181*	−0.138*	0.1066*	0.0121	1
15	RB	0.0073	0.0071	−0.0096	−0.0316	−0.0837*	−0.0521*	−0.0491*	−0.0333*	0.0505*	−0.0392*	0.0415*	0.0123	0.2468*	−0.008	1

Source: Author’s own.

Table 4. t test of CAAR.

Windows	Number of cases	CAARE	P-value
[−10;10]	3076	−0.023	0.000
[−15;15]	3024	−0.032	0.000
[−20;20]	2997	−0.042	0.000
[−30;30]	2962	−0.057	0.000

Source: Author’s own.

Figure 1. AARE for non-SOEs and SOEs during the event window.

Source: Author’s own.

Figure 2. CAARE for non-SOEs and SOEs during the event window.

Source: Author’s own.

Table 5. t test of difference-in-means between non-SOEs and SOEs.

Windows	N (Non-SOE)	Mean of CAR	N(SOE)	Mean of CAR	Difference-in-Means
[−10,10]	2193	−0.0250	883	−0.0170	−0.008**
[−15,15]	2153	−0.0360	871	−0.0240	−0.012***
[−20,20]	2130	−0.0460	867	−0.0320	−0.014***
[−30,30]	2109	−0.0610	853	−0.0450	−0.017***

Note: *p < 0.1, **p < 0.05, p***< 0.01.

Source: Author’s own.

Table 6. Regression results.

	Model 1: first stage	Model 2	Model 3	Model 4	Model 5
Variables	Misconduct	CAR10	CAR10	CAR15	CAR15
H1: State ownership		0.020*	0.025*	0.030**	0.048**
		(0.012)	(0.014)	(0.014)	(0.019)
Affiliation level			0.006**		0.005**
			(0.003)		(0.003)
H2: State ownership			−0.018***		−0.024***
×Affiliation level			(0.007)		(0.007)
Industry regulation			−0.052**		−0.050**
			(0.021)		(0.023)
H3：State ownership			0.153**		0.150**
×Industry regulation			(0.063)		(0.065)
Previous	0.517***
	(0.024)
Institutional	−0.326***	−0.017	−0.015	−0.009	−0.005
	(0.050)	(0.010)	(0.010)	(0.010)	(0.010)
Equity	−0.2***	−0.032	0.017	0.027	0.098
	(0.025)	(0.070)	(0.070)	(0.080)	(0.080)
ROA	−0.825***	−0.004	−0.004	−0.006	−0.006
	(0.059)	(0.005)	(0.005)	(0.007)	(0.007)
DAR	0.343***	−0.016*	−0.016*	−0.020	−0.020
	(0.056)	(0.009)	(0.009)	(0.012)	(0.012)
Board size	−0.009	−0.001	−0.001	−0.001	−0.001
	(0.006)	(0.001)	(0.001)	(0.002)	(0.002)
Size	0.016*	0.006***	0.005***	0.006**	0.006**
	(0.009)	(0.002)	(0.002)	(0.003)	(0.003)
Duality	−0.052**	−0.042	−0.08	−0.1	−0.143
	(0.024)	(0.080)	(0.080)	(0.100)	(0.100)
Punishment		−0.004*	−0.004*	−0.002	−0.002
		(0.002)	(0.002)	(0.003)	(0.003)
Industrial misconduct		0.001	0.001	0.001	0.001
		(0.002)	(0.002)	(0.003)	(0.003)
Regulatory body		0.002	0.003	0.005	0.005
		(0.004)	(0.004)	(0.005)	(0.005)
IMR		0.03	0.099	−0.073	0.054
		(0.082)	(0.082)	(0.098)	(0.099)
CATEGORY		YES	YES	YES	YES
FE-YEAR	YES	YES	YES	YES	YES
FE-REGION	YES	YES	YES	YES	YES
CONS	−1.828***	−0.032	−0.032	−0.059**	−0.059**
	(0.185)	(0.023)	(0.023)	(0.027)	(0.027)
N	30683	3076	3076	3024	3024
R^2	0.0714	0.012	0.012	0.015	0.012

Note: *p < 0.1, **p < 0.05, ***p < 0.01; Robust standard errors at the firm level are reported in parentheses.

Source: Author’s own.

Table 7. Regression results-continued.

	Model 6	Model 7	Model 8	Model 9
Variables	CAR20	CAR20	CAR30	CAR30
H1:SO	0.042**	0.057***	0.051***	0.074***
	(0.017)	(0.022)	(0.019)	(0.028)
AL		0.004		0.001
		(0.003)		(0.004)
H2:SO*AL		−0.021**		−0.015
		(0.008)		(0.011)
IR		−0.075**		−0.042
		(0.033)		(0.030)
H3:SO*IR		0.205**		0.101
		(0.099)		(0.087)
ROA	−0.008	−0.008	−0.017	−0.017
	(0.010)	(0.010)	(0.012)	(0.012)
DAR	−0.024*	−0.024*	−0.036**	−0.036**
	(0.013)	(0.013)	(0.015)	(0.016)
Board size	0.002	0.002	0.002	0.002
	(0.002)	(0.002)	(0.002)	(0.002)
Size	0.007**	0.007**	0.008**	0.008**
	(0.003)	(0.003)	(0.003)	(0.003)
Duality	0.008	0.008	−0.005	−0.005
	(0.007)	(0.007)	(0.008)	(0.008)
Punishment	−0.004	−0.004	−0.004	−0.004
	(0.003)	(0.003)	(0.004)	(0.004)
Industrial misconduct	0.001	0.002	0.003	0.003
	(0.003)	(0.003)	(0.004)	(0.004)
Regulatory body	0.003	0.003	−0.002	−0.002
	(0.005)	(0.005)	(0.006)	(0.006)
IMR	0.068	0.080	0.109	0.102
	(0.092)	(0.092)	(0.098)	(0.099)
CATEGORY	YES	YES	YES	YES
FE-YEAR	YES	YES	YES	YES
FE-REGION	YES	YES	YES	YES
CONS	−0.082**	−0.083**	−0.087**	−0.089**
	(0.032)	(0.032)	(0.038)	(0.038)
N	2997	2997	2962	2962
R^2_adjusted	0.016	0.018	0.021	0.022

Note: *p < 0.1, **p < 0.05, ***p < 0.01; Robust standard errors at the firm level are reported in parentheses.

Source: Author’s own.

Figure 3. (a) Moderation effect of affiliation level. (b) Moderation effect of industry regulation.

Source: Author’s own.

Table 8. Robustness check.

	Model 1	Model 2	Model 3	Model 4
Variables	CAR10	CAR15	CAR20	CAR30
H1:SO	0.025**	0.039**	0.047**	0.066***
	(0.012)	(0.017)	(0.019)	(0.023)
AL	0.006**	0.004	0.004	0.001
	(0.003)	(0.003)	(0.003)	(0.004)
H2:SO*AL	−0.016**	−0.016**	−0.015*	−0.011
	(0.007)	(0.007)	(0.008)	(0.010)
IR	−0.049**	−0.037	−0.065*	−0.011
	(0.021)	(0.023)	(0.034)	(0.030)
H3:SO*IR	0.121**	0.096*	0.149*	0.011
	(0.054)	(0.058)	(0.086)	(0.076)
ROA	−0.004	−0.006	−0.007	−0.017
	(0.005)	(0.007)	(0.010)	(0.012)
DAR	−0.016*	−0.021	−0.020	−0.037**
	(0.009)	(0.013)	(0.013)	(0.016)
Board size	−0.001	−0.001	0.002	0.001
	(0.001)	(0.002)	(0.002)	(0.002)
Size	0.001	0.003	0.008	−0.004
	(0.005)	(0.006)	(0.007)	(0.008)
Duality	−0.004*	−0.002	−0.004	−0.004
	(0.002)	(0.003)	(0.003)	(0.004)
Punishment	0.002	0.000	0.002	0.003
	(0.002)	(0.003)	(0.003)	(0.004)
Industrial misconduct	0.003	0.005	0.002	−0.003
	(0.004)	(0.005)	(0.005)	(0.006)
Regulatory body	−0.004	−0.006	−0.007	−0.017
	(0.005)	(0.007)	(0.010)	(0.012)
IMR	0.033	0.064	0.066	0.078
	(0.082)	(0.099)	(0.092)	(0.099)
CATEGORY	YES	YES	YES	YES
FE-YEAR	YES	YES	YES	YES
FE-REGION	YES	YES	YES	YES
CONS	−0.030	−0.056**	−0.076**	−0.083**
	(0.023)	(0.027)	(0.032)	(0.038)
N	3076	3024	2997	2962
R^2_adjusted	0.012	0.013	0.017	0.021

Note: *p < 0.1, **p < 0.05, ***p < 0.01; Robust standard errors at the firm level are reported in parentheses.

Source: Author’s own.