Reforming private securities litigation in China: Does private enforcement by minority shareholders matter to corporate fraud?

Lu Li, Gaoping Zheng and Angel Zhong

Finance Research Letters, 2024, vol. 64, issue C

Abstract: Leveraging the pilot initiative on the diversified resolution mechanism for private securities litigation in China, our study explores the impact of private securities litigation by minority shareholders on corporate fraud. Employing a difference-in-differences analysis over the period 2010–2018, we observe a substantial reduction of 16.4 % in corporate fraud. This effect is particularly pronounced in companies with political connections and those characterized by weaker internal governance structures. Further analysis indicates a diminishing gap in corporate fraud between pilot and non-pilot firms after the nationwide expansion of the pilot program. These findings carry significant policy implications, particularly for emerging markets seeking to enhance protection for minority shareholders.

Keywords: Private securities litigation; Minority shareholders; Corporate fraud; Corporate governance (search for similar items in EconPapers)
JEL-codes: G30 K22 M41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:64:y:2024:i:c:s1544612324005361

DOI: 10.1016/j.frl.2024.105506

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