Tinghua Duan, Kai Li, Rafael Rogo, and Ray Zhang
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.