Public and Private Sanctions for Corporate Misconduct: The case of the Spanish listed firms

Abstract

The objective of this paper is to evaluate the impact that the application of legislation for competition exerts on financial markets. The sanctioning procedure is classified into three key moments, beginning with the announcement of the initiation of an investigation when a case of corporate misconduct is suspected. The next step is to inform and impose a fine, if applicable. Finally, the third stage is to rectify or ratify the sanction. Using the event study methodology, the impact of these announcements on the share price between 2013 and 2021 is analyzed. This research focuses on analyzing those that are listed on the Spanish stock exchange, which add up to a total of 22 firms and 95 observations. The results show a negative and significant market reaction to the series of announcements. While this reaction intensifies if the fine is ratified, the response becomes positive when the sanction is rectified and annulled. In conclusion, the evidence found allows us to affirm that the market penalizes corporate misconduct. The public sanction, imposed by the competent authority, is followed by a private sanction that materializes through a reduction in market value and the consequent effect on reputation.