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<p>Regulatory intervention is important in shaping corporate behaviour, especially in markets with relatively weak property rights. Using a sample of publicly listed companies in China from 2006 to 2021, this study investigates the impact of regulatory intervention in managers’ misconduct on the corporate idiosyncratic risk. Using a difference-in-differences design, we explore the idiosyncratic risk&#xa0;change after inspections of a manager’s misconduct to that of their counterparts who are not involved in misconduct activities. We find that inspections of corporate managers’ misconduct significantly reduce their firms’ risk by reducing investors’ heterogeneous beliefs and improving corporate transparency. This effect is more pronounced in firms with lower levels of information transparency and greater external attention pressure, suggesting that regulatory interventions could improve corporate information environment.</p>

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Make it Right: Regulatory Intervention in Managers’ Misconduct and Corporate Risk

  • 期刊论文

  • 发表日期：

    2025年2月3日

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  • Feng He,
  • Hanyu Du,
  • Youwei Li,
  • Jing Hao

摘要

Regulatory intervention is important in shaping corporate behaviour, especially in markets with relatively weak property rights. Using a sample of publicly listed companies in China from 2006 to 2021, this study investigates the impact of regulatory intervention in managers’ misconduct on the corporate idiosyncratic risk. Using a difference-in-differences design, we explore the idiosyncratic risk change after inspections of a manager’s misconduct to that of their counterparts who are not involved in misconduct activities. We find that inspections of corporate managers’ misconduct significantly reduce their firms’ risk by reducing investors’ heterogeneous beliefs and improving corporate transparency. This effect is more pronounced in firms with lower levels of information transparency and greater external attention pressure, suggesting that regulatory interventions could improve corporate information environment.