The effects of a U.S. approach to enforcement: evidence from China

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Duan, T 
Li, K 
Rogo, R 
Zhang, R 

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 2013-2018, 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 address CL issues point by point, but do not experience significant improvements in their information environments. Our paper highlights the importance of incentives rather than regulation/enforcement in reducing information asymmetry.

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Journal of Financial and Quantitative Analysis
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Cambridge University Press
Li acknowledges financial support from the Social Sciences and Humanities Research Council of Canada (Grant Number: 435-2018-0037), the PH&N Center for Financial Research/Bureau of Asset Management, the Beijing Outstanding Young Scientist Program (BJJWZYJH01201910034034), and the 111 Project (B20094). Zhang acknowledges financial support from the Chartered Professional Accountants of British Columbia