The Market Reaction Of Major Public Opinion Cases

The theory of law and finance is the interdiscipline of jurisprudence and finance emerging from the end of the 20th century.The theory of law and finance holds that good legal institution and legal environment can protect the interests of investors against expropriation by entrepreneurs,influence the external financing of enterprises,promote the development of financial system and further have impact on economic growth.With the continuous improvement of China's financial markets,the financial system has played an extremely important role in promoting economic growth.Therefore,it is of great practical and economic significance to study the role of legal environment and legal system in promoting financial development.All regions in China share the same statute under the same national environment,however the legal environment is quite different from each other.Therefore,the study of the legal environment in China can not only focus on written law,but also need to evaluate legal environment and legal protection in various perspectives.In this context,this article selects the occurrences of major public opinion cases to reflect the issues of local legal environment,through the study of the impact of these cases on local listed companies,this research explore the important role of legal environment in financial development.This article chooses the outbreak of public opinion about 37 major public opinion cases from 2011 to 2017,and treats listed companies in the city where the cases broke out as the research objects.Using event study method to explore the market reaction to the listed companies before and after the outbreak of public opinion,this article finds that the outbreak of public opinion in major public opinion cases had a significant negative cumulative abnormal return,and had negative impact on market value of listed companies.In consideration of that the results of the event study method may be affected by other factors in the event window,this research design placebo tests to exclude these factors.After supposing that the shock happends three months before or after the event date,and that the listed companies in the neighboring cities where the public opinion broke out on the day are also affected,this article excludes other factors and hold the conclusions robust.In order to clarify the long-term impact of the public opinion explosion on local listed companies,this paper uses the propensity score matching method to match a control group of listed companies which are affected,and uses a difference-in-differences method to estimate the real impact of public opinion on Tobin Q of listed companies.The result of PSM-DID shows that the listed company affected by the outbreak of public opinion has a significantly lower Tobin Q value one and two years after the outbreak of public opinion,indicating that major public opinion cases will also have a long-term negative impact on the local listed companies This article further shows that this negative impact mainly caused by enterprises with higher financing constraints,cases with higher levels of attention,regions with higher legalization levels and smaller listed companies.Finally,this paper explores the mechanism by which we can alleviate the negative impact on the enterprises under the circumstance that the legal environment is not perfect.This paper finds that the higher level of banking competition,good corporate reputation and better market competition can reduce the negative impact of imperfect legal system on enterprises.The conclusion of this article reveals the dangers of major public opinion cases from the perspective of law and finance,and calls on relevant judicial departments to strengthen the fairness of law enforcement and improve the legal system so as to create a good judicial environment for the growth of enterprises,development of financial system and economic growth.