Accounting-Based Regulation and Protection of Minority Shareholders

Publication Type

Conference Paper

Publication Date

8-2005

Abstract

This paper examines the impact of a seasonal equity offering (SEO) regulation based on accounting profitability numbers (accounting-based regulation hereafter) on the stock market in China. Although positive accounting theory predicts that regulations based on accounting numbers could induce entrants’ incentive to opportunistically manipulate these accounting numbers, we find that the accounting-based regulation in China could protect minority shareholders. Specifically, Chinese market generally positively reacts to announcement of the accounting-based regulation. In addition, we find that investors react less negatively to SEO proposal announcements made by Chinese listed companies when there is an accounting-based regulation than when absent. The beneficial effect of accounting-based regulation in China may due to the prevalence of controlled companies and the weakness of other institutional, market, cultural, and legal constraints.

Discipline

Accounting | Business Law, Public Responsibility, and Ethics | Corporate Finance

Research Areas

Corporate Governance, Auditing and Risk Management

Publication

American Accounting Association Annual Meeting

City or Country

Anaheim, CA, USA

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