The Influence Of Worldwide Scandals On China's Comparable Companies

In the past years,previous studies are rarely involved in the automobile industry. But nowadays at scandals in the automobile industry happens more and more often, and public attention is being paid to them. On 18 September 2015, the United States Environmental Protection Agency(EPA) issued a notice of violation of the Clean Air Act to German automaker Volkswagen Group, after it was found that the car maker had intentionally programmed turbocharged direct injection(TDI) diesel engines to activate certain emissions controls only in laboratory emissions testing. The programming caused the vehicles' nitrogen oxide(NOx) output to meet US standards during regulatory testing, but emit up to 40 times more NOx in real-world driving. However, the Volkswagen emissions scandal offers one opportunity to us to investigate the influence of worldwide scandals on China s comparable companies.This research starts by Volkswagen emissions scandal, and chooses 20 China s publicly listed automobile companies as a sample in the automobile industry that runs similar business with Volkswagen, using Event Study as the main research approach to discuss and Market Model to estimate normal stock returns. The empirical analysis can be divided into two parts: first, the discussion of the contagion and competition effects for the chosen companies; second, the further discussion of China s publicly listed automobile companies by comparing the rate of change for sales, in order to provide timely suggestions to the automobile industry and relative supervisory departments in China.Through the calculation of test indicator and Significant Analysis, it comes out that the contagion and competition effects are relative weak for the most individual companies in China, and only 5 companies are affected significantly. Among the 5 companies, Zhongtong Bus, Yaxing Bus, Guangqi Group and Great Wall Automobile show significant competition effect, and Dongfeng Automobile shows significant contagion effect. By analyzing the annual reports of the 5 companies, I find that only the effects that Yaxing Bus and Dongfeng Automobile shows are caused by Volkswagen emissions scandal. Thus I suggest that the result may because of the particularity of the automobile industry and the brand image of Volkswagen.On the other hand, the result shows that, although for most of the individual companies the effect is weak, it is significant for the entire industry, while giving people a certain degree of panic which did not last long. As long as the consumers and investors figured out the truth of Volkswagen emissions scandal, China s automobile industry not only would be questioned anymore, but also benefited from it due to the competition effect.The innovation of this paper breaks the routine taking worldwide scandal as the event which are related to morality instead of economy or accounting. So as to choose the automobile industry. In addition, the paper combines the rate of change for sales and the business performance with the conclusion of Event Study, in order to analyze the relationship between significance and business performance.