James Si Zeng (The University of Hong Kong – Faculty of Law) has posted Private Securities Enforcement and Agency Costs: Evidence from China’s Financial Courts on SSRN. Here is the abstract:
Whether countries that lack private securities enforcement should build it remains an open question. Supporters argue that private enforcement makes reported information reliable, and that reliable information lowers the cost of monitoring and rewarding managers. This article tests this hypothesis. China’s specialized financial courts, created in four staggered cohorts between 2018 and 2022, made an entitlement that had long existed on paper newly enforceable. A stacked difference-in-differences design shows that financial-court jurisdiction raises the sensitivity of top-three executive pay to return on assets by 0.31 to 0.41. The response appears in every court cohort, is unusual against placebo assignment of the reform to comparable jurisdictions, and is accompanied by a fall in earnings management. Private enforcement lowers agency costs by making the information boards rely on usable as a basis for pay.
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