Abstract
This paper investigates the intra-industry spillover effects of corporate scandals in China. Using corporate scandal announcements, we show how a contagion effect spreads to peer firms depending on the quality of corporate governance and political connections at these firms. Good corporate governance in peer firms reduces the contagion effect of scandals. External governance has a stronger influence on reducing the contagion effect of both financial and non-financial scandals, while ownership concentration and the quality of auditors play a more pronounced role in mitigating the contagion effect of financial scandal announcements. State ownership helps mitigate the negative influence of non-financial scandals in individual-owned firms but not in state-owned enterprises (SOE).
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