How Does Reduced Timeliness of Public Enforcement Affect Corporate Disclosure Behavior in a Developing Financial Market?
70 Pages Posted: 21 Aug 2018 Last revised: 21 Jul 2021
Date Written: July 18, 2021
We examine the consequences of a regulatory reform that reduces the timeliness of public enforcement of mandatory corporate disclosure in a developing financial market. Contrary to the intent of the regulatory reform, corporate disclosure timeliness is not increased while corporate disclosure accuracy is decreased following the reform. Our evidence suggests that independent auditors do, but many major market institutions, including independent directors, mutual fund managers and financial analysts do not, play any significant role in mitigating corporate managers’ incentive to reduce disclosure quality after the reform. Consistent with stock market efficiency, stock market investors correctly anticipate the reduced quality of corporate disclosure by discounting the stock price at the time of disclosure.
Keywords: public enforcement; disclosure quality; managerial agency; market institutions; China
JEL Classification: M41; G14; G20
Suggested Citation: Suggested Citation