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

Tinghua Duan, Kai Li, Rafael Rogo and Ray Zhang
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Tinghua Duan: LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique
Kai Li: University of British Columbia Sauder School of Business - UBC - University of British Columbia [Canada]
Rafael Rogo: University of Cambridge Judge Business School
Ray Zhang: SFU Beedie [SFU.ca] - Beedie School of Business [Simon Fraser University] - SFU.ca - Simon Fraser University = Université Simon Fraser

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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 of 2013 to 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 article highlights the importance of incentives rather than regulation/enforcement in reducing information asymmetry.

Date: 2023-03-22
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Published in Journal of Financial and Quantitative Analysis, 2023, 59 (1), pp.121-156. ⟨10.1017/S0022109023000352⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04543591

DOI: 10.1017/S0022109023000352

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