Corporate misconduct could affect counterparties’ trust in the firm, which in turn would damage the firm's reputation and future operations. Given the reputation-related market losses following revelations of corporate misconduct, prior research suggests that firms have incentives to target capital providers in a reputation repair strategy to restore stakeholders’ trust. Building on the reputation rebuilding perspective and the voluntary disclosure argument, this study examines whether and how the use of information disclosure in share repurchase announcements by public companies after encountering allegations of wrongdoing can help reduce uncertainty in the capital market and thus repair damaged reputation. Based on a sample of alleged corporate misconduct by Taiwan listed firms from 2000 to 2020, we find that 126 and 134 allegations of misconduct have announced share repurchase programs over a 1-year period prior to and following the revelations of misconduct. Typically, offending firms experience significantly negative abnormal returns over the revelation days. Although both the closest repurchase announcements to misconduct revelations in the pre- and post-misconduct periods all experience significantly positive market responses, the price effects of share repurchase announcements in the pre-misconduct period are somewhat higher than that in the post-misconduct period. Offending firms with stronger market reactions to pre-misconduct share repurchase announcements are associated with smaller price effects to misconduct revelations. Besides, offending firms with stronger market reactions to pre-misconduct share repurchase announcements tend to experience higher price effects to post-misconduct share repurchase announcements and are prone to announce share repurchase plans in the post-misconduct period.

Authors:
Tsai-Ling Liao, National Formosa University, Taiwan
Ya-Wen Lai, National Formosa University, Taiwan
Jin-Sheng Roan, National Chung Cheng University, Taiwan

About the Presenter(s)
Professor Tsai-Ling Liao is a University Professor/Principal Lecturer at National Formosa University in Taiwan

See this presentation on the full schedule – Friday Schedule

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