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

See all articles by Tinghua Duan

Tinghua Duan

IESEG School of Management

Kai Li

University of British Columbia (UBC) - Sauder School of Business; China Academy of Financial Research (CAFR)

Rafael Rogo

Indiana University - Kelley School of Business - Department of Accounting

Ray Zhang

Simon Fraser University (SFU)

Date Written: January 9, 2020

Abstract

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

Suggested Citation

Duan, Tinghua and Li, Kai and Rogo, Rafael and Zhang, Ray, The Regulatory and Capital-Market Effects of a U.S. Approach to Enforcement: Evidence from China (January 9, 2020). Available at SSRN: https://ssrn.com/abstract=3501168 or http://dx.doi.org/10.2139/ssrn.3501168

Tinghua Duan

IESEG School of Management ( email )

Socle de la Grande Arche
1 Parvis de la Defense
Puteaux, Paris 92800
France

Kai Li (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8353 (Phone)
604-822-4695 (Fax)

HOME PAGE: http://finance.sauder.ubc.ca/~kaili

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Rafael Rogo

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Ray Zhang

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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