This study investigates the effectiveness of public enforcement in financial markets with weak investor protection, specifically examining the impact of China's random inspection policy on corporate disclosure. This policy is designed to prevent selective enforcement by randomly selecting the inspected firms and the inspectors. Our findings indicate that inspected firms significantly improve their disclosure quality by adopting a more conservative tone in subsequent years. Cross-sectional tests reveal a more significant effect among state-owned enterprises (SOEs) and firms with stronger social connections, lower media coverage, and higher litigation risk, which can be attributed to the random inspections reducing regulatory capture, narrowing the information gap, and increasing firms' exposure to regulatory oversight and market participants. However, the influence of these inspections is moderated by market incentives of corporate managers, as proxied by financing demands and insider trading incentives. In addition, a plausible mechanism for this improvement in corporate disclosure quality is the intensified monitoring by external auditors following random inspections. Further evidence indicates a reduction in firms' crash risk due to enhanced disclosure quality after random inspections. Finally, we observe that CSRC random inspections also improve the disclosure quality of non-inspected firms within the same industry, thereby creating a spillover effect. These findings suggest that public enforcement has a significant regulatory impact in financial markets where investor protection is weak through enhancing regulatory transparency and curbing regulatory discretion.

We investigate the effect and economic consequences of bank digital transformation on corporate financial constraints using data from Chi-na.The results show that bank digital transformation alleviates corporate financial constraints by decreasing information search,processing,and verification costs.Furthermore,the effect of bank digital transformation on corporate financial constraints is more pronounced for firms with higher contract intensity,more intangible assets,and poorer external information environment.We also find that bank digital transformation alleviates corporate financial constraints by increasing debt financing.In addition,we show that digital transformation promotes lending by big banks,resulting in the crowding-out effect.Finally,we find that bank digital transformation promotes the flow of credit resources to non-zombie firms,which effectively improves credit allocation efficiency.This paper extends research on digital finance and new structural finance from the perspective of bank digital transformation.

This paper investigates the impact of the minimum wage (MW) on corporate tax planning. By exploiting heterogeneity in the MW level across cities and over time in China, we find that increases in the MW are associated with greater tax planning by firms. Our results are robust to the consideration of a sample of contiguous firms in two adjacent cities subject to different MWs, a change specification and a difference-in-differences research design that exploits the enactment of the Labor Contract Law in 2008 as an exogenous shock to the MW. In cross-sectional analyses, we find that the positive impact of MWs on tax planning is more pronounced for firms with higher labor intensity, greater financial constraints, less product market power, and in regions with laxer enforcement. Our paper suggests that public policy decisions such as MWs impose significant, albeit likely unintended, externalities on corporate decisions.

We investigate whether foreign investors help to reduce local firms’ future stock price crash risk through their external monitoring. We find that the entrance of foreign investors is associated with a significant reduction in local firms’ future crash risk. Further investigation reveals that foreign investors help to improve local firms’ financial reporting quality from the perspectives of accrual quality, conservatism, and annual report tone management. The evidence is consistent with our conjecture that foreign investors play an important external monitoring role, which reduces managerial bad-news hoarding and thereby lowers local firms’ future crash risk. We also find that the crash risk–reducing role of foreign investors is more pronounced when foreign investors are more familiar with the institutional background of the host country, when they have stronger incentives to monitor local firms, and when local firms have higher governance efficacy. A variety of robustness checks reveals that our results are unlikely to be driven by potential endogeneity.

We investigate whether pledgee competition affects the disclosure choice of firms whose controlling shareholders pledge their shares. We find that pledgee competition is positively related to pledge firms’ annual report tone management. This positive relationship is stronger for pledge firms with lower credit quality and non-state-owned enterprise pledge firms. Further corroborating our results, higher pledgee competition increases the future crash risk of pledge firms. Collectively, our results suggest that competition pressure induces pledgees to lower their monitoring incentives to remain competitive in the marketplace, thus leading to pledge firms’ bad news hoarding behavior.