The effect of the imposition of a public reprimand on the stock price of companies in Malaysia

Abstract

PurposeThis paper aims to examine the effect of the imposition of public reprimands on the underlying stock prices of companies in Malaysia.Design/methodology/approachData on 148 companies that received public reprimands during the period from 2007 to 2013 were collected from the Bursa Malaysia website to analyse the market reactions to the imposition of public reprimands.FindingsBased on a market model of abnormal returns, the empirical result showed that the imposition of a public reprimand had a negative impact on a company’s stock price. Moreover, when a market model of average abnormal returns (AAR) was used, the result indicated that companies that had received a public reprimand had a negative AAR value.Research limitations/implicationsThe findings from this study have implications for shareholders in making their investment decisions because they can switch their investments to other companies and markets after a company in which they are interested or have made an investment has received a public reprimand.Originality/valueThere is limited research on the imposition of public reprimands and the effect that it has on companies in developing countries. Hence, this study contributes to research in this area by providing evidence on the effect of public reprimand on stock price reactions in the context of a developing country, namely, Malaysia.