Journal of Financial and Quantitative Analysis Vol. 59 No. 1 2024

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

Tinghua Duan^1,2; Kai Li³; Rafael Rogo⁴; Ray Zhang⁵

¹ Université de Lille · ² Lille Économie Management · ³ University of British Columbia Sauder School of Business (United Kingdom) · ⁴ University of Cambridge · ⁵ Simon Fraser University

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.

DOI

10.1017/s0022109023000352

Volume

59

Issue

1

Pages

121-156

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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