The Regulatory and Capital-Market Effects of a U.S. Approach to Enforcement: Evidence from China
62 Pages Posted: 31 Dec 2019 Last revised: 11 Jan 2020
Date Written: January 9, 2020
We examine the regulatory and capital-market effects of implementing a U.S. approach to the enforcement of securities laws in China. Using a hand-collected sample of comment letters (CLs) issued by the Shanghai Stock Exchange, we first show that the price reaction to CL receipts is negative and significant. Moreover, targeted firms are more likely to amend their annual reports and improve their disclosure quality compared to control firms. However, we do not find that CL receipts are associated with any significant capital-market effects. Our evidence on the disparity in regulatory and capital-market effects in emerging markets has important policy implications.
Keywords: enforcement, disclosure, comment letter, regulatory effects, event study, disclosure quality, capital-market effects, stock price synchronicity, bid-ask spread, earnings informativeness
JEL Classification: G14, G15, G34, G38
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