The Market Reaction to Food and Drug Safety Incidents of Listed Companies

In recent years, food and drug safety incidents of listed companies frequently occur. These incidents were not only bring threat to the life safety of consumers and cause the panic of the society, but also cause disastrous loss to involved companies. In this article, by using incident study method, the abnormal return and cumulative abnormal return of the collector 41 involved companies are analyzed. The empirical results show that involved companies' cumulative abnormal return are significant negative in 35 consecutive trading days after the incidents, and the negative effect lasted until the 120th trading day. The minimum negative cumulative abnormal return is-0.074, which means the average value of accumulated loss of the involved companies, is up to 7.4%. Index Terms - Food safety incident; Drug safety incident; Incident study method; Abnormal return; Cumulative abnormal return