Do Financial Markets React to Regulatory Sanctions? An Event Study of the French Case

25 Pages Posted: 9 Jul 2015

See all articles by Thierry Kirat

Thierry Kirat

Université Paris Dauphine

Amir Rezaee

ISG BUSINESS SCHOOL

Date Written: June 4, 2015

Abstract

The paper offers an empirical analysis of the effects of sanctions decided by the Financial Markets Authority (AMF) on the reputation of firms in France. Using an event study, we intend to show the impact of three events on the stock prices: opening of an investigation by the AMF; issuance of a monetary sanction; publication of the information about sanction a newspaper. The reputational impact issue raises the broader issue of understanding of financial regulation enforcement operates in concreto. We find a strong negative impact of the announcement of sanction in press on the firms’ stock prices. We observe a reputational loss of the deferred firm following the disclosure of sanction in press. We observe also a weak decrease in stock prices when the firm has been notified of the opening of investigation on its misconducts, however we find no evidence on the impact of announcement of sanction directly to the firm on the stock prices. We carry out an OLS cross-section regression to assess the impact of the amount of sanction on the reputational loss of firm. The amount of monetary sanctions are too low, compared the market size of deferred companies, to influence stock prices and contribute in reputational loss.

Keywords: finance, regulation, sanction, reputation

JEL Classification: G18, K22, K41

Suggested Citation

Kirat, Thierry and Rezaee, Amir, Do Financial Markets React to Regulatory Sanctions? An Event Study of the French Case (June 4, 2015). Available at SSRN: https://ssrn.com/abstract=2614396 or http://dx.doi.org/10.2139/ssrn.2614396

Thierry Kirat (Contact Author)

Université Paris Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

Amir Rezaee

ISG BUSINESS SCHOOL ( email )

147 AVENUE VICTOR HUGO
PARIS, 75016
France

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