Institutions and Corporate Reputation: Evidence from Public Debt Markets

Gu, Xian; Hasan, Iftekhar; Lu, Haitian

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.

Citation

Gu, X., Hasan, I., & Lu, H. (2023). Institutions and Corporate Reputation: Evidence from Public Debt Markets. Journal of Business Ethics, 183, 165–189. https://doi.org/10.1007/s10551-021-05020-x

• Journal Article Type: Article
• Acceptance Date: Dec 11, 2021
• Online Publication Date: Jan 25, 2022
• Publication Date: 2023-02
• Deposit Date: Feb 9, 2022
• Publicly Available Date: Jan 25, 2023
• Journal: Journal of Business Ethics
• Print ISSN: 0167-4544
• Electronic ISSN: 1573-0697
• Publisher: Springer
• Peer Reviewed: Peer Reviewed
• Volume: 183
• Pages: 165–189
• DOI: https://doi.org/10.1007/s10551-021-05020-x
• Public URL: https://durham-repository.worktribe.com/output/1214453