Shareholders' political hierarchy and regulatory enforcement: Evidence from corporate risk management

Huimin Guo, Zheyao Pan and Gary Tian

The British Accounting Review, 2024, vol. 56, issue 6

Abstract: In our study, we investigate the impact of shareholders' political hierarchy on regulatory enforcement within the context of a Chinese local state-owned enterprise where multiple government shareholders, each with different political hierarchical levels, coexist. Our research reveals that the presence of higher-level noncontrolling government shareholders, specifically noncontrolling government shareholders with a higher hierarchical level than the controlling government shareholders, enhances the risk-reducing effect of derivative use. This indicates that higher-level noncontrolling government shareholders play a role in facilitating the enforcement of derivative-related regulations. Additionally, we find that these higher-level noncontrolling government shareholders enhance the efficiency of derivative use through two primary channels: their superior access to regulatory information and their monitoring of corporate regulatory compliance. We also explore the impact of higher-level noncontrolling government shareholders in regulatory enforcement by examining the 2009–2010 top-down derivative-related regulation. In summary, our analysis underscores the positive influence of higher-level noncontrolling government shareholders on risk management efficiency, primarily due to their information advantage regarding regulations, which subsequently strengthens the enforceability of regulatory measures.

Keywords: Higher-level noncontrolling government shareholders; Information quality; Corporate risk management; Derivative-related regulations; Regulatory enforcement (search for similar items in EconPapers)
JEL-codes: G23 G32 G38 H73 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:56:y:2024:i:6:s0890838924001112

DOI: 10.1016/j.bar.2024.101372

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