The Effects of a U.S. Approach to Enforcement: Evidence from China
94 Pages Posted: 31 Dec 2019 Last revised: 14 Nov 2022
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: Suggested Citation