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

66 Pages Posted: 8 Feb 2019 Last revised: 26 Jul 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: July 25, 2023


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. Managers’ overreaction to the salience of a peer’s punishment could be an important channel of transmission of the spillover effects of punishments on firms’ outcomes.

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 (July 25, 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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