On the Consequences of Being Named in a Sanction for Listed Companies
Laure De Batz  1, 2@  
1 : LabEx Refi - Paris 1 Panthéon Sorbonne  (CES - Centre d'Economie de la Sorbonne)
Paris 1 Panthéon Sorbonne
2 : Institute of Economic Studies [Prague]  (IES)  -  Site web
Charles University in Prague, Opletalova 26 , CZ-110 00 Prague -  République tchèque

This paper questions the informational content of sanctions as conducted by the French Financial Market Authority (AMF) involving listed companies, through reactions from financial markets. Out of the 308 decisions made over the period 2004 to 2016, to which add 32 settlements since 2012, listed companies were either sentenced guilty (52 sanctions and 5 settlements) or not-guilty (11 sanctions). Firms were also victims of others' financial market misconducts (65 sanctions). This article contributes to answering whether being named in a sanction, as an offender, an acquitted, or a victim, conveys information to the market using an event-study methodology, completed with cross-sectional regressions: do investors react to such news, and if so, at which stage of the procedure, to what extent, and why?

The market reacts accordingly to the information content of the sanctions. Guilty listed companies experience significant abnormal negative returns after the sanction decision, and its publication, though to a limited extent in absolute and relative terms. Such underperformance is correlated with investigations, longer procedures, smaller companies possibly from industrial or technological sectors, stronger media coverage of the sanctions following the publication, and better economic activity. The markets also incorporate the informational content of the decision: no statistically significant abnormal reaction follows the publication of anonymized sanctions; market reactions vary depending on the regulatory breaches; and, to some extent, the severity of the decision influences abnormal returns. Settlements do not convey information to the market, being lighter and shorter procedure associated with lower sanctions. Being sentenced non-guilty implies a mixed correction in the market, depending on the step of the procedure. Finally, companies named in a sanction report as victims of others' regulatory breaches also suffer negative abnormal returns after the sanction, possibly being synonym of double punishment.

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