Aaltodoc publication archive (Aalto University institutional repository)
School of Business | Department of Accounting | Accounting | 2015
Thesis number: 14064
Market reaction to announcement of enforcement actions against related party transaction: Evidence from Chinese listed companies
|Title:||Market reaction to announcement of enforcement actions against related party transaction: Evidence from Chinese listed companies|
|Year:||2015 Language: eng|
|Department:||Department of Accounting|
|Index terms:||laskentatoimi; accounting; corporate governance; corporate governance; pörssiyhtiöt; exchange-listed companies; Kiina; China|
» hse_ethesis_14064.pdf size:773 KB (790944)
|Key terms:||related party transaction (RPT), enforcement action (EA), cumulative abnormal return (CAR), rectification action, non-operating, corporate governance|
The main objective of this thesis is to investigate (1) whether the enforcement actions (EAs) against related party transaction (RPT) have a negative effect on the market reaction around announcement period, and (2) what specific factors affect the market reaction. The conjecture is driven by the agency theory regarding the opportunistic behavior via RPT. The result of the first research question is benchmarked against the market reaction for the public announcements (PAs) of RPT. The second question focuses on examining two specific factors that influence the announcement effect of RPT EAs, namely, the announcement type and the transaction type. The announcement type concerns whether the rectification action could reduce the negative announcement effect of EAs. The transaction type concerns whether the non-operating RPT yields significant announcement effect than other types do. Additionally, the market reaction for the corporate governance mechanism is discussed. It is hypothesized that the market would impose a governance discount to firms engaged in RPT.
Initially 84 target firms that undertook RPT between fiscal year 2000 and 2013 are selected from EAs released from January 2008 to July 2014. The matched-pair analysis is adopted for matching firms with RPT EAs to the same number of matched-pair firms with RPT PAs on one-to-one basis. Therefore, the total sample of the thesis consists of 168 Chinese publicly traded firms. The event study methodology is employed to calculate the announcement effect which is measured by the cumulative abnormal return (CAR). Quantitative methods are applied to explore the changes of CARs in response to the different factors.
The main conclusion is that the RPT EAs have a significant and negative impact on the stock returns of the target firm around announcement date. And the RPT PAs have a significant and positive announcement effect. Moreover, EAs that include the rectification actions have a weakly negative announcement effect. And EAs that target on non-operating RPT have a strongly negative announcement effect. In addition, firms with RPT EAs are negatively correlated with the CEO duality. This is in contrast to the firms with RPT PAs since these firms tend to be positively correlated with the CEO duality and larger board size. The difference of the market reactions for the CEO duality between two samples might arise from the investors' perception on the role that the dual CEO plays situated in different contexts.
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