It is a sign of a lower tolerance of investors

At a time where the authority of des marchés financiers (AMF) French comes to see reinforced his power of sanction, the first study on the stock market impact of punishment decided by the French regulator delivers many teachings. Thus, John Armour, Colin Mayer and Andrea Polo, researchers at the University of Oxford, analyzed the effect of sanctions, decided mainly by the Financial Services Authority (FSA), the French regulator of markets, on the course of the convicted companies.

Over the period from 2000 to April 2010, 43 public condemnations have been decided by the FSA, and 3 at the initiative of the London Stock Exchange. 30 of them punish pipes and actions who have harmed investors and customers. Examples Misleading advertising, bad information, inadequate sales of financial products... The other major category (16 sanctions) includes penalties and abuse which did not breach directly to customers and investors. It may be failures in their systems of control, fight against money laundering, failure to comply with regulatory constraints... Over three days, from the previous day in the wake of the announcement of the sanction, the company sees back its course, in accumulated, 1.48. The penalty imposed by the market as a decrease in the title is 10 times greater than the amount of the actual fine to which society is bound. When a subsidiary which is sentenced, the parent is logically affected also.

Little influence on the course

The fall of the prices is not proportional to the amount of the fine. Indeed, it is the type of penalty and abuse influence the reaction of the market. Thus, the decline is stronger, (-2,55) when punishment is related to actions which have been reached to investors and clients. Much of this decline is explained by the degradation of the reputation and fame of the offending company. An effect that is proportionately higher for small businesses. However, the course of a society is hardly affected, he set up even a bit, when the penalty punishes "General" abuse, which not only affect directly the entities with which it is related (customers, investors, suppliers).

Since the crisis of mid-2007, the market more harshly punishes wrongdoing. It is a sign of a lower tolerance of investors. In the phases of upside and carrier markets, they appear more willing to forgive them their sins even if it is to their detriment.

"The fact that the reaction of the market in a fine is not related to the amount of the means that regulators finally have little direct influence and control over the size of the stock losses by the offending company." "The only decision at their disposal is to make public or not assent, and therefore affect the reputation of the company concerned by this means", noted researchers. Balance sheet, when the company "wrong" its investors or clients, the degradation of his reputation, materialized in the decline of its course, in addition to the amount of the fine. If regulators took account of the induced effect, they should assign a less strong penalty, market instructing him to pay a much larger additional penalty in the final. Conversely, they should pay more a guilty of other types of abuse, because the market is particularly self-serving in their regard because it tends to rise when they are disclosed.