Bans on eating and drinking: What do investors think?

This study examines the stock return responses to the declaration by the Chinese government of five restrictions on the drinking of alcohol. We propose that a teetotal effect occurred when the stock returns of alcohol companies dropped after these announcements. We classify alcohol companies into those that produced Chinese liquor and those that produced non-Chinese liquor and argue that Chinese liquor was more seriously affected by the restriction than non-Chinese liquor. We further classify Chinese liquor into top- and bottom-quality Chinese liquor. Through our analysis, we observed distinct patterns in the stock returns of these companies over different time periods. First, our results indicate the existence of a teetotal effect on the event day, especially for top-quality Chinese liquor. Next, the abnormal returns became positive in the days following the event, varying between the second, third, and fourth days. Finally, the returns show a mixed pattern for an even longer time window. We then explain these observations. The first negative effect was a result of the market shocks from the news; then Chinese investors believed that the demand for high-quality Chinese liquor would not be reduced because of the endurance of the drinking culture of China. Finally, people accepted the restrictions.