Public and Private Sanctions for Corporate Misconduct: Evidence From Listed Companies

This paper aims to evaluate the impact that the application of competition legislation exerts on financial markets. The sanctioning process is classified into three key moments: the announcement of an investigation when a case of corporate misconduct is suspected; the imposition of a fine, if applicable; and, finally, the rectification or ratification of the sanction. The impact of these announcements on share prices between 2013 and 2021 is analyzed using the event study methodology. This research focuses on companies listed on the Spanish stock exchange, yielding 22 firms with 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 state that the market does in effect penalize corporate misconduct. Furthermore, the public sanction imposed by the competent authority is then followed by a private sanction, which manifests itself as a drop in market value. This is consistent with a hypothetical effect of reputational loss, especially in those cases in which the sanction is more significant in relation to the company's market value.