The 2015 Chinese Food Safety Law and market quality

• Author: Qizhi Wang,Rui Ota
• Published date: 01 December 2019
• DOI: http://doi.org/10.1111/1468-0106.12291
• Date: 01 December 2019

ORIGINAL MANUSCRIPT

The 2015 Chinese Food Safety Law and market

quality

Qizhi Wang

1

| Rui Ota

2

1

Maruha Nichiro Corporation, Tokyo, Japan

2

Department of Economics, Yokohama City

University, Yokohama, Japan

Correspondence

Rui Ota, Department of Economics, Yokohama

City University, 22-2 Seto, Kanazawa-ku,

Yokohama 236-0027 Japan.

Email: rota@yokohama-cu.ac.jp

Funding information

Ministry of Education, Culture, Sports, Science

and Technology, Grant/Award Numbers:

KAKENHI #16K03635, KAKENHI #25780168

Abstract

Safety standards, including food safety laws, provide neces-

sary infrastructure to improve market quality. The present

study investigates the impact of the revised Chinese Food

Safety Law on the quality of China's food market. Using an

event study approach, we empirically analyse the impact of

nine official news events relating to the new Food Safety

Law on the stock prices of companies engaged in food-

related businesses. The study demonstrates that three news

events have a statistically significant and robust impact, and

that all the events have a negative influence on the prices.

The results show the possibility of a drop in market quality

in the short term in the process of improving quality.

1|INTRODUCTION

The quality of products has been receiving increasing attention in the context of the globalized econ-

omy. Food safety is an important issue because it not only impacts people’s health but also affects

market transactions. For example, in 2002, Japan drastically reduced the import of frozen spinach

from China when Japan found chlorpyrifos, an agrochemical, exceeding the reference values. After

this incident, China adopted its first food safety law in 2009, and revised the law in 2015 in accor-

dance with international standards. This shows how important it is to establish legal systems to

ensure the quality of products.

In his paper, Yano (2009) develops the concept of market quality and demonstrates theoretically

that a high-quality market embodied by infrastructure including an appropriate legal system is crucial

for the development and growth of a modern economy. As discussed by Feenstra and Wei (2010),

China has become one of the world's largest exporters. Therefore, it is essential for other countries to

understand how providing market infrastructure, including laws, will improve the quality of Chinese

markets. The purpose of this study is to investigate the impact of China's revised Food Safety Law

on the market quality of the Chinese food market.

To this end, using the event study method, the present paper examines the impact of news related

to the 2015 Chinese Food Safety Law on stock prices of companies engaged in food-related

Received: 10 January 2018 Revised: 2 November 2018 Accepted: 29 November 2018

DOI: 10.1111/1468-0106.12291

Pac Econ Rev. 2019;24:631–641. wileyonlinelibrary.com/journal/paer © 2019 John Wiley & Sons Australia, Ltd 631