Law environment, government regulation and implicit contract: Empirical evidence from the scandals of China¡¯s listed companies

Donghua Chen (), Tiesheng Zhang and Xiang Li
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Donghua Chen: Accounting Department, School of Business, Nanjing University, Nanjing 210093, China
Tiesheng Zhang: Accounting Department, School of Business, Nanjing University, Nanjing 210093, China
Xiang Li: Accounting Department, School of Business, Nanjing University, Nanjing 210093, China

Frontiers of Economics in China-Selected Publications from Chinese Universities, 2008, vol. 3, issue 4, 560-584

Abstract: In China¡¯s transitional economy, government regulation could be a substitute for the lack of law mechanism and regulator¡¯s power could spill over into other areas not regulated. Then, theoretically it could construct implicit contracts. For example, China Securities Regulatory Commission (CSRC) has the rights to choose initial public offering(IPO) firms among applicants. It might construct implicit contracts between CSRC and local governments if the former consider the frequency and the severity of the scandals among different areas. Local governments could make decisions on whether and how much to implement the implicit contracts.

Keywords: law environment; government regulation; implicit contract; corporate scandal (search for similar items in EconPapers)
JEL-codes: K22 K23 (search for similar items in EconPapers)
Date: 2008
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