An event study of the effects of regulatory changes on the food industry: The case of the Food Safety Law of China
Abstract
Purpose
The purpose of this paper is to examine the effects of China’s Food Safety Law on its food industry.
Design/methodology/approach
First, an event study is employed to investigate the impact of regulatory changes on the food industry. Then the authors examine the association between the magnitude of cumulative abnormal returns (CARs) and firm characteristics in a cross-sectional regression framework.
Findings
The results suggest that the announcements of some important events during the legislative process do affect the investors’ expectations. Further analysis shows that some sub-industries, especially the dairy industry, underperform the others around the enforcement date of the Food Safety Law, indicating that investors expect more costs of compliance for the sub-industries with lower levels of food safety. Moreover, CARs are found to be positively correlated with firm size, implying that larger firms may benefit more from this food legislative reform than small ones.
Practical implications
Measuring the impact of regulatory changes on food producers and investors by stock market response could help regulators assess the effectiveness of regulation and amend the law accordingly.
Originality/value
Previous studies seldom empirically examine the effect of Food Safety Laws on China’s food industry and this study attempts to fill this gap, which contributes to extending the understanding of the impact of legislative reform or regulatory changes on related industries.
Keywords
Acknowledgements
This study is supported by the National Social Science Foundation of China (12&ZD068). The authors thank the anonymous referees and the editors for their helpful comments. The authors also thank Xianliang Tian for his comments and also his help with the language and Yanli Chen for her suggestions.
Citation
Xiao, X. and Gao, Y. (2017), "An event study of the effects of regulatory changes on the food industry: The case of the Food Safety Law of China", China Agricultural Economic Review, Vol. 9 No. 1, pp. 81-92. https://doi.org/10.1108/CAER-01-2014-0006
Publisher
:Emerald Publishing Limited
Copyright © 2017, Emerald Publishing Limited