Reputational Penalties in Japan Evidence from Corporate Scandals

We examine incidents in which Japanese businesses are implicated in corporate scandals. Such firms suffer statistically significant losses in their market values. Given the negligible legal and regulatory penalties for Japanese companies, we interpret the results as convincing evidence on the size of reputational losses. We also compare our results to those found in U.S. studies. The average negative abnormal stock price reaction is larger in Japan than in the United States. Moreover, they are negative and statistically significant even when it is not obvious that the firm violated an implicit or explicit contract with the damaged party