Punish One, Teach A Hundred: The Sobering Effect of Peer Punishment on the Unpunished

66 Pages Posted: 8 Feb 2019 Last revised: 30 Mar 2023

See all articles by Francesco D'Acunto

Francesco D'Acunto

Georgetown University

Michael Weber

University of Chicago - Finance; National Bureau of Economic Research (NBER)

Jin Xie

Peking University HSBC Business School

Multiple version iconThere are 3 versions of this paper

Date Written: March 30, 2023

Abstract

Direct experience of a peer's punishment might have a sobering effect above and beyond deterrence (information about punishments). We test this mechanism in China studying the reactions to listed state-owned enterprises' (SOEs) punishments for fraudulent loan guarantees by firms in the same location or industry (peers) and non-peer firms, across SOEs and non-SOEs. After experiencing SOEs' punishments, peer SOEs cut their loan guarantees by more than non-peer SOEs and peer non-SOEs, even if information is common to all firms. The reaction is stronger for peer SOEs whose CEOs have higher career concerns or face lower costs of cutting guarantees.

Keywords: Corporate Governance, Cultural Finance, Information Transmission, Peer Effects, Reputational Sanctions, Related Party Transactions, Emerging Markets, Corporate Fraud, Government Ownership.

JEL Classification: D91, D72, G32, G41, K42

Suggested Citation

D'Acunto, Francesco and Weber, Michael and Xie, Jin, Punish One, Teach A Hundred: The Sobering Effect of Peer Punishment on the Unpunished (March 30, 2023). Chicago Booth Research Paper No. 19-06, Fama-Miller Working Paper, University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-12, Available at SSRN: https://ssrn.com/abstract=3330883 or http://dx.doi.org/10.2139/ssrn.3330883

Francesco D'Acunto

Georgetown University ( email )

Washington, DC 20057
United States

Michael Weber (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jin Xie

Peking University HSBC Business School ( email )

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