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Investor reactions to food safety incidents: Evidence from the Chinese milk industry2We thank Colin Poulton (Managing Editor), two anonymous referees, Martin Qiu, Shasha Liu, and Yan Sheng for helpful comments and valuable suggestions. All remaining errors and omissions are our own. We gratefully acknowledge the financial support from National Natural Science Foundation of China (grant no. 71372130; 71173078) and the Fundamental Research Funds for the Central Universities of China (grant no. HUST-2013WQ025).2

Author

Listed:
  • Dai, Yunhao
  • Kong, Dongmin
  • Wang, Maobin

Abstract

Using a natural experiment in the Chinese milk industry as background, this paper investigates the reactions of individual and institutional investors to food safety incidents. By classifying firms as either honest or dishonest, we find that: First, honest firms significantly outperform dishonest ones and receive more investment flow. Second, individual investors react to incidents more negatively and intensely, especially toward dishonest firms, compared with institutional investors. This study offers important policy implications: First, our findings directly suggest that the government should enact appropriate policies to strengthen food safety and protect consumers’ health. Second, the government should implement efficient mechanisms to strengthen firms’ incentives to participate in social responsibility activities. Third, having institutional investors as corporate monitors is not a sufficient substitute for legal penalties.

Suggested Citation

  • Dai, Yunhao & Kong, Dongmin & Wang, Maobin, 2013. "Investor reactions to food safety incidents: Evidence from the Chinese milk industry2We thank Colin Poulton (Managing Editor), two anonymous referees, Martin Qiu, Shasha Liu, and Yan Sheng for helpful," Food Policy, Elsevier, vol. 43(C), pages 23-31.
    • Handle: RePEc:eee:jfpoli:v:43:y:2013:i:c:p:23-31
    DOI: 10.1016/j.foodpol.2013.08.004
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