Corporate Reputation in Bond Market: Evidence from Lawsuits

58 Pages Posted: 21 Nov 2016 Last revised: 23 Sep 2018

See all articles by Xian Gu

Xian Gu

Central University of Finance and Economics (CUFE)

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Haitian Lu

Hong Kong Polytechnic University

Date Written: September 21, 2018

Abstract

How much does firm reputation matter in the public debt market? Using lawsuits that have an adverse effect on firm reputation, we find corporate bond prices react to lawsuit information. Litigated firms issue bonds with 4.9 percent higher yield spreads, 11-month shorter maturities, and $14.7 million less proceeds than non-litigated issuers. The reputation penalty, which correlates with case merit and outcome, is larger for private-owned firms and firms with headquarters in low-legal protection but high-social capital regions. Our evidence shows reputation matters in emerging markets as much as it does in the U.S. and how the institutional environment interacts with reputation mechanism in the market.

Keywords: Reputation, Trust, Litigation, Public Debt, Bond Return

JEL Classification: G12, G14, L14

Suggested Citation

Gu, Xian and Hasan, Iftekhar and Lu, Haitian, Corporate Reputation in Bond Market: Evidence from Lawsuits (September 21, 2018). Gabelli School of Business, Fordham University Research Paper No. 2872705. Available at SSRN: https://ssrn.com/abstract=2872705 or http://dx.doi.org/10.2139/ssrn.2872705

Xian Gu

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Iftekhar Hasan (Contact Author)

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Haitian Lu

Hong Kong Polytechnic University ( email )

School of Accounting and Finance
Hung Hom
Hong Kong

Register to save articles to
your library

Register

Paper statistics

Downloads
133
rank
206,318
Abstract Views
672
PlumX Metrics