Regulator Involvement in the Spread of Negative Media Exposure of Organizational Misconduct
Hongfei Ruan, Jia Ming, Zhe Zhang · Academy of Management Proceedings · 2017
The news media periodically report corporate misconduct that negatively affects other firms in the same industry. However, regulators also affect how investors in those bystander firms perceive misconduct. This study proposes that the magnitude of crisis spilloverthat is, the degree to which one firm's misconduct affects other firmsis larger when regulators are involved in exposing corporate misconduct. We consider how specific types of information magnify crisis spillover, and we propose that positive familiarity with perpetrator firms increases spillover when regulators are involved in exposing misconducts. Additionally, we propose that subsequent media coverage of corporate misconduct increases the negative impact on bystander firms when regulators expose misconduct. Based on events in the Chinese food industry from 2008 to 2012, empirical studies and robustness tests on stock-price movements in response to misconduct exposure support our hypotheses.