How to Make Public Enforcement Work in Weak Investor Protection Countries - Evidence from China

Sep 4, 2026

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Exploiting a public enforcement campaign launched in 2007 to implement China’s first mandatory Corporate Governance Code issued in 2002, this study explains how public enforcement can operate effectively in weak institutional environments. The campaign introduced a detailed corporate governance checklist, transparent disclosure and correction procedures, greater monitoring involvement by CSRC regional offices, and stronger binding penalties for firms failing to correct noncompliance on time. Analyses indicate improvements in corporate governance of publicly listed firms and enhanced shareholder value, showing that properly implemented public enforcement still matters for investor protection.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages59

Reading Time2 h 29 min

AccessFree to download

Introduction

Research objective and context

Why public enforcement matters

Key features of the 2007 campaign

How to Make Public Enforcement Work in Weak Investor Protection Countries? Evidence from China Bin Ke1 and Xiaojun Zhang2 March 11, 2017 We wish to thank Qiang Cheng, Dan Collins, Zhaoyang Gu, Darius Miller (discussant), Terence Ng, Susan Shu (discussant), Siew Hong Teoh, Gwen Yu, Huai Zhang, and workshop participants at the Beijing Technology and Business University, Stanford Business School conference on Global Crossroads: Navigating the World, the MIT Asia Conference in Accounting, Nanyang Business School, Shanghai University of International Business and Economics, Shanghai University of Finance and Economics, Singapore Management University, and Tsinghua University for helpful comments and Na Liu and Jin Zhang for able research assistance. 1 Department of Accounting, NUS Business School, National University of Singapore, Mochtar Riady Building, BIZ 1, \# 07-53, 15 Kent Ridge Drive, Singapore 119245. Tel: +65 6601 3133. Fax: +65 6773 6493. Email: [bizk@nus.edu.sg](bizk@nus.edu.sg). 2 Department of Accounting, Guanghua School of Management, Peking University, Guanghua School of Management Building 2, \#471, 5 Yiheyuan Rd., Beijing, China 118431. Tel: +86 (010) 6275 9650. Email: [zxj@gsm.pku.edu.cn](zxj@gsm.pku.edu.cn). How to Make Public Enforcement Work in Weak Investor Protection Countries? Evidence from China Abstract Exploiting an innovative public enforcement campaign in 2007 to enforce China’s first mandatory Corporate Governance Code of 2002, we provide insight into how to make public enforcement work in weak institutional environments. The 2007 campaign differs from past public enforcement activities in several important aspects. First, the 2007 campaign provided a very detailed check list asking a lot of specific questions about a firm’s corporate governance status. Second, the 2007 campaign was very transparent with regard to the disclosure and correction of identified corporate governance noncompliance problems. Third, the 2007 campaign required the CSRC regional offices to be more involved in monitoring the implementation of the public enforcement campaign. Fourth, the 2007 campaign imposed more binding penalties for firms that fail to timely correct the identified governance noncompliance problems. Our analyses suggest that the 2007 campaign was effective in improving publicly listed firms’ corporate governance and shareholder value. Our results suggest that public enforcement, if properly implemented, still matters in increasing shareholder value in weak investor protection countries. Key words: public enforcement; weak investor protection countries; China; shareholder value JEL codes: G34, G38, M41, K22 1. Introduction Despite its perceived importance to shareholder value and economic growth (La Porta et al. 2000; Shleifer and Wolfenzon 2002; Allen et al. 2005) , investor protection is lacking in many less developed economies. While it is relatively easy to propose investor protection regulations, the enforcement of such regulations is often ineffective in less developed economies. Hence, an important question and challenge to policy makers is to identify effective mechanisms that can help improve the enforcement of investor protection regulations in less developed economies. The objective of this study is to shed light on this important question by analyzing the efficacy of a unique public enforcement campaign undertaken by the China Securities Regulatory Commission (CSRC) in 2007 to enforce China’s first mandatory Corporate Governance Code issued in January 2002. Whether public enforcement can help protect investors carries additional significance in weak investor protection countries because private enforcement mechanisms usually do not work well due to lack of an independent judiciary (La Porta et al. 2006) . In addition, it is extremely difficult to develop credible private enforcement institutions in many developing economies and the only viable option readily available to

FAQs

What public enforcement campaign is analyzed, and why was it undertaken?

The study analyzes China’s 2007 public enforcement campaign, used to enforce China’s first mandatory Corporate Governance Code issued in 2002. It addresses how enforcement can work in weak institutional environments.

What differentiates the 2007 campaign from earlier public enforcement efforts?

The 2007 campaign used a detailed corporate governance checklist, required transparent disclosure and remedial solutions, increased CSRC regional office involvement in monitoring, and imposed more binding penalties for late correction of noncompliance.

What do the results suggest about shareholder value in weak investor protection countries?

The analyses suggest the 2007 campaign improved corporate governance and shareholder value. Public enforcement, when properly implemented, still increases shareholder value in weak investor protection countries.

Sep 4, 2026

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