The Effects of a U.S. Approach to Enforcement: Evidence from China

94 Pages Posted: 31 Dec 2019 Last revised: 14 Nov 2022

See all articles by Tinghua Duan

Tinghua Duan

IESEG School of Management

Kai Li

University of British Columbia (UBC) - Sauder School of Business; Asian Bureau of Finance and Economic Research (ABFER); China Academy of Financial Research (CAFR); European Corporate Governance Institute (ECGI); Canadian Sustainable Finance Network (CSFN)

Rafael Rogo

University of Cambridge - Judge Business School

Ray Zhang

Simon Fraser University - Beedie School of Business

Date Written: February 28, 2022

Abstract

We examine the effects of implementing a U.S. approach to the enforcement of mandatory
disclosure in China. Using a hand-collected sample of comment letters (CLs) issued by the
Shanghai Stock Exchange over the period 2013-2018, we show that stock price reactions to CL
receipts and replies are negative and significant. Using textual analysis to match issues raised by
regulators to targeted firms’ changes in disclosure, we show that these firms do address CL issues
point by point, but do not experience significant improvements in their information environments.
Our paper highlights the importance of incentives rather than regulation/enforcement in reducing
information asymmetry.

Keywords: enforcement, disclosure, comment letter, capital-market effects, relational contracting, political incentive, textual analysis

JEL Classification: G14, G15, G34, G38

Suggested Citation

Duan, Tinghua and Li, Kai and Rogo, Rafael and Zhang, Ray, The Effects of a U.S. Approach to Enforcement: Evidence from China (February 28, 2022). Available at SSRN: https://ssrn.com/abstract=3501168 or http://dx.doi.org/10.2139/ssrn.3501168

Tinghua Duan

IESEG School of Management ( email )

Socle de la Grande Arche
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Kai Li (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

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Canadian Sustainable Finance Network (CSFN) ( email )

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Rafael Rogo

University of Cambridge - Judge Business School ( email )

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United Kingdom

Ray Zhang

Simon Fraser University - Beedie School of Business ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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