How stock markets react to regulatory sanctions? Evidence from France

Kirat, Thierry; Rezaee, Amir

doi:10.1080/00036846.2019.1644443

Cited by 7 publications

(5 citation statements)

References 21 publications

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“…), and possibly additional negative repercussions (for example dismissal of top managers). Similar event studies were undergone for the sanctions of the AMF in France (Djama, 2013;Kirat and Rezaee, 2015;de Batz, 2018). They concurred with negative abnormal reactions following the latest (and public) steps of the enforcement procedure, though to a limited extent.…”

Section: Literature Reviewsupporting

confidence: 57%

Financial crime spillovers. Does one gain to be avenged?

Laure

2020

Journal of Economic Behavior & Organization

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This paper examines the spillovers of the sanction procedures on listed companies which were victims of others' financial regulatory breaches (i.e. regulated entities or individuals). Market manipulators can be investigated and possibly sanctioned for doing so, according to the French enforcement scheme. This research enriches past literature with a new complementary perspectivebon victims. Past work typically focused on abnormal returns primarily for investigated and/or sanctioned listed companies, as well as for plaintive firms, in a wide range of jurisdictions. The results demonstrate that victim firms suffer, on average, significant negative abnormal returns after the sanction. Naming victims hence may possibly be synonym of double punishment, as the firms already suffered during the violation period. It demonstrates a market failure where victims are not properly differentiated from wrongdoers. This article investigates the information content of such market behavior. The markets also incorporate the information content of the decision and of the parties at stake. All in all, those results plead for an anonymization of victims over the enforcement process, to protect from being sanctioned, and possibly suggest to name and shame market manipulators.

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Section: Literature Reviewsupporting

confidence: 57%

Financial crime spillovers. Does one gain to be avenged?

Laure

2020

Journal of Economic Behavior & Organization

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“…On the other hand, in line with past studies, the media coverage of the sanction after the publication will trigger stronger abnormal negative returns. Lastly, the sanctions seem to have gained in echo in the markets since the early stages of the Great Financial Crisis, implying higher abnormal returns, in line with Armour et al (2017) for the UK, but contrary to Kirat and Rezaee (2015) for France. Lastly, the cross-sectional results point that one of the challenges for regulators stressed by Carvajal and Elliott (2007), the independence from governmental and political process, seems to overcome as the variables for the successive chairmen of the AMF (who are named by the government) through time do not impact significantly market reactions.…”

Section: Concluding Remarks Regarding Guilty Sanction Decisionsmentioning

confidence: 96%

“…The event studies were re-estimated to test whether the financial crisis reinforced the market awareness and risk sensitiveness, with higher reactions afterwards. In the literature, two dates mark the start of the Great Financial Crisis: June 2007 (as in Armour et al, 2017), with the beginning of the subprime crisis in the USA, or September 2008, with Lehman Brothers' bankruptcy (as in Kirat and Rezaee, 2015). The two dates were tested to search for a turning point in the market reactions, with respectively 14-38 and 19-33 sanctions for every sub-period.…”

Section: Split Between Before and After The Crisismentioning

confidence: 99%

“…Additionally, contrary to the USA, limited research was done on the sanctions of the French AMF. The past studies focused on one kind of regulatory breach (only accounting frauds, in Djama, 2008) or covered a limited number of sanctions (25 sanctions of listed companies, in Kirat and Rezaee, 2015). This gap can be accounted for by the limited open access to data.…”

Section: Introductionmentioning

confidence: 99%

“…Such as listed companies Lott, 1993, Kirat andRezaee, 2015), or asset managers(Choi and Kahan, 2007) 5. Such as financial and accounting frauds (for France,Djama, 2008), the accounting disclosure(Karpoff et al, 2008b), or insider trading news(Rogers et al, 2016).6 Miller (2006),Fang and Peress (2009),Fang et al (2014) andRogers et al (2016) 7.…”

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confidence: 99%

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Financial Impact of Regulatory Sanctions on French Listed Companies

Batz

2018

SSRN Journal

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This paper assesses the information content of sanctions of listed companies pronounced by the French Financial Market Authority, through reactions from financial markets over the period 2004 to 2016. We answer whether, for a listed company, being named in a sanction report, as an offender, an acquitted, or a victim of others' financial misconduct conveys information to the market using an eventstudy methodology, complemented with cross-sectional regression analysis: do investors react to such news, and if so, at which stage of the procedure, to what extent, and why? We find that the markets do react accordingly to the information content of the sanctions. Guilty listed companies experience significant negative abnormal returns after both the sanction decision, and its publication (respectively-0.9% and-1.1% from the day preceding the event until 3 days after), though to a limited extent in absolute and relative terms. Some factors will contribute to stronger underperformances such as being investigated, longer procedures, being a smaller company possibly from financial or technological sectors, stronger media coverage of the sanctions, and better economic activity. The markets also incorporate the information content of the decision: no statistically significant abnormal reaction follows the publication of anonymized sanctions; market reactions vary depending on the regulatory breaches, being stronger for third party offenses; and, to some extent, the severity of the decision influences the magnitude of abnormal returns. Settlements do not convey information to the market, being a lighter and shorter procedure, associated with lower sanctions. Being sentenced non-guilty implies a mixed correction on the market, depending on the step of the procedure. Finally, companies named in a sanction report as victims of others' regulatory breaches also suffer negative abnormal returns after the sanction, suggesting double punishment.

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Market supervisor monetary penalties for non‐compliance with informational requirements: Do investors care?

Kurek,

Górowski

2024

Int. J Fin Econ

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This study measures and differentiates investors' responses to market supervisors' monetary penalties for non‐compliance with informational requirements for the capital market in Poland, broken down by the type of distorted information and the form of a breach. An event study was conducted to measure the information content of monetary penalties. We used a market model and tested the significance of abnormal daily returns using both parametric and non‐parametric tests. Cross‐sectional analyses were conducted to measure the determinants of market reactions. We employed two novel classifications of non‐compliance: by the type of distorted information (financial reporting information and other information) and by the form of a breach (failing to provide information and providing erroneous information). We contribute to the literature by finding that investors react negatively to monetary penalties imposed on companies for non‐compliance with financial reporting information requirements, whereas they do not react to such penalties for non‐compliance with other information requirements. We incorporate original variables that explain the magnitude of the market reaction and find that (i) the longer the distance between the breach and penalty imposition, the weaker the market reaction, and (ii) the greater the monetary penalty, the stronger the market reaction. We also find that both forms of breach lead to similar negative market reactions.

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How stock markets react to regulatory sanctions? Evidence from France

Cited by 7 publications

References 21 publications

Financial crime spillovers. Does one gain to be avenged?

Financial crime spillovers. Does one gain to be avenged?

Financial Impact of Regulatory Sanctions on French Listed Companies

Market supervisor monetary penalties for non‐compliance with informational requirements: Do investors care?

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