Delisting of Foreign Firms and market perception on their competitors

Abstract

Recent works have documented how one firm’s legitimacy loss may spread to other firms through similarity-based negative spillovers. We complement this line of research by proposing the coexistence of contagion and substitution effects. From the social judgment lens, we propose that while category-based judgments of stakeholders can yield a similarity-based contagion effect, feature-based judgments can identify a similarity-based substitution effect. Utilizing delisting by foreign firms as a natural laboratory, we found that a foreign firm’s delisting negatively affects investors’ and media’s valuation of other stay-listed foreign firms from the same country (the contagion effect), but positively affected investors’ valuation of other stay-listed foreign firms followed by the same analysts (the substitution effect). We also theorize the moderating effect of host-country anti-globalization sentiments in the process.