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This study employs novel corporate environmental, social, and governance profiles to investigate the industry effects of environmental and social (ES) scandals in China. The findings reveal a notable decrease in stock prices for rival firms during scandal announcements. Further, we document a significant, positive correlation between rivals' ES performance and the abnormal returns over a five-day period surrounding the scandals. This correlation is more pronounced in rivals that disclose ES information. Additionally, relative to high-performing rivals, those with weaker ES performance significantly enhance their ES performance in the following year, driven by the perceived ES value in industry scandals. The findings also underscore the influence of state ownership, external governance environment, and industry competition on the spillover effects of ES scandals via risk channels.
Wu et al. (Sat,) studied this question.
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