This study examines whether penalties issued to Chinese listed companies by securities regulators for violations of corporate law affect the cost of debt, and the moderating role of corporate social responsibility fulfillment on this relationship. Our sample consists of firms listed on Shanghai and Shenzhen stock exchanges from 2011 to 2017 and the data are collected from the announcements of China Securities Regulatory Commission. The findings are as follows: punishment announcements by regulatory authorities increase the cost of debt; and the (...) effect of punishment announcements on the cost of debt is partially offset by prior CSR performance. These findings are shown to be robust. The reputation insurance effect of CSR is more pronounced in state-owned enterprises and in an institutional environment with low marketization, a weak legal environment, and low information transparency. The findings support the reputation insurance hypothesis of CSR and employ the cost of debt as a governance mechanism. (shrink)

This study investigates the interaction between suppliers and fraudulent customer firms from the perspective of reputation damage and reputation recovery. Specifically, reputation damage from the regulatory penalty for corporate fraud induces the trust crisis and suppliers respond to fraudulent firms by reducing the trade credit supply. To repair a damaged reputation and rebuild the trust, fraudulent firms raise the ratio of prepayment to purchase volume when purchasing from small suppliers and increase the proportion of purchase from large suppliers in the (...) next year. Channel analysis shows that the declining trust is one of potential mechanisms to reduce the trade credit. Furthermore, the negative effect is more pronounced for fraudulent firms with non-related party suppliers, higher supplier concentration, less analyst coverage, and for fraudulent firms located in regions with less-developed financial environment. Additionally, supplier sanctions have a spillover effect on non-fraudulent customer firms in the same industry. The conclusions are robust to a series of checks, including PSM–DiD, firm and year fixed effect, the alternative measure for trade credit financing, the industry-year fixed effect and the consideration of the monetary policy and financial crisis. (shrink)

This study investigates the impact of bank digitalization on capital reallocation using the adoption of digital lending platforms and a difference-in-differences design. We find that digital transformation in banking facilitates the reallocation of capital from higher-risk to lower-risk sectors. This effect is particularly pronounced in regions with high levels of government influence and in city and rural commercial banks, which are more susceptible to government intervention. Our findings suggest that banks that implement digital platforms are better positioned to resist political (...) pressures, as the data-driven, automated decision-making processes make it difficult to justify risky, politically motivated loans, while increased transparency limits local government influence over credit allocation. The effects of digitalization on capital reallocation are further amplified in banks with opaque information environments, weak internal control, and high credit risks. Additional analyses show that the adoption of digital lending platforms improves the timeliness of loan loss recognition, reduces bank risk, and enhances operating performance. This study contributes to the literature on digitalization by highlighting its role in improving capital allocation in the banking sector and offers insights into how technological advancements can mitigate the risks posed by political intervention and high-risk lending. (shrink)