Can Old Sin Make New Shame? Stock Market Reactions to the Release of Movies Re-Exposing Past Corporate Scandals

Abstract

We study stock market reactions to the release of movies re-exposing past publicly known corporate scandals. Using a sample of 54 event firms featured in 23 movies, we find event firms have significantly negative and persistent abnormal returns to movie releases. We posit that such negative reactions are associated with the adverse public perception of event firms induced by scandal re-exposing movies. Consistent with this hypothesis, we find more pronounced negative abnormal returns for firms featured in more popular movies. Moreover, event firms experience downward earnings forecast revisions and increased implied costs of capital following movie releases.

Keywords: Event Study, Corporate Scandals, Media, Stale Information, Cost of Capital

JEL Classification: G12, G14, G41