Research On Violation Of Information Disclosure Regulations Of Listed Companies

Since the 1990s, a wave of strengthening supervision and control of information disclosure has been set off around the world, under the influence of financial scandals in American large corporations such as Enron, WorldCom and Xerox. Then research on violation of information disclosure regulations has been one of the most concerned issues for both theorists and practioners.Securities market in China was also adversely affected by activities of violating information disclosure regulations. Many incidents of violation of regulations such as Lantian and Yinguangxia, have cause a huge shock to the securities market. As the reform of share-splitting structure goes on, an age of full circulation for stock market will come. Securities market in China, however, still stay in a primary stage with an immature supervision mechanism on information disclosure. Under this special background, the quality of information disclosure of listed companies will face more severe challenges. Therefore, to research the characters and disciplines of violation of information disclosure regulations has both theoretical and practical meanings for us to have a deep understanding of improvement on supervision mechanism of information disclosure, enforce transparency of securities market and strengthen the legislation of information disclosure.According to the control system of violation of information disclosure regulations, this paper, based on the relationship with current situations of violation, unfolds in three aspects: ownership structure of listed companies, internal governance mechanism and investor protection. Main process includes five basic parts: concepts definition– theories review– problems description– factors analysis– economic consequences. Concepts definition is to define the basic meanings and forms of disclosure violation activities. Then theories review summarizes relevant theories of disclosure violation. Problems description makes an analysis of current violation situations and a summary of its characters and disciplines. Further, the paper analyzes main influencing factors of disclosure violation by using corporate governance theories. Finally, it analyzes problems of investor protection based on the influence on capital markets caused by violation of information disclosure regulations.ChapterⅠIntroductionAs the introduction of the entire paper, this part mainly introduces research background and significance, research process and content, research design and method, innovation of this paper. This part will provide a whole framework for the following main text.ChapterⅡTheories ReviewThis chapter first defines the meanings and forms of violation of information disclosure regulations. It defines violation activities as a kind of misconduct such as violating relevant laws and regulations or providing false information, hiding true information and postponing information disclosure when listed companies prepare public reports to the external entities. Then it reviews relevant theories including information asymmetry, efficient market, agency theory, accounting fraud incentive and corporate governance theory. Further, it analyzes the control system of violation of information disclosure regulations, which includes mechanisms of system security, market security, control of shareholders, control of management decision and execution.Finally, it reviews relevant literatures about violation problems in China. ChapterⅢA current situation analysis of violation of information disclosure regulations in listed companiesThis chapter analyzes current situations and main characters of violation of information disclosure regulations after reviewing the development of disclosure system of listed companies in China. From the character of amount changes of violation activities dealt with, it presented a trend of right-hand N type in the past ten years. Before 2001 the number of punishment is relatively low, but it suddenly increased to a high number in 2001, which shows the supervision efforts of securities supervision department, which dealt with violation of disclosure regulations, have been strengthened. From the type of the violation, the most general type is postponing disclosure, about 48% of total violation cases; under most situations, there were also a large number of concurrent violation activities. From the occurrence time of violation, it can be inferred that companies with an age of about 4 to 9 years after being listed, during the time of which securities supervision department should enforce supervision efforts, are more prone to violate regulations than"newer"or"older"ones. Furthermore, from the point of financial pressure, this chapter analyzes its influence on violation of information disclosure regulations, which finds that pressure of repayment and maintaining listing or profitable status had a significant influence on violation activities. Therefore, for high financial pressure corporations supervision department should pay more attention to their information disclosure in case of violation of regulations.ChapterⅣOwnership structure and violation of information disclosure regulationsThis chapter, from the perspective of ownership structure, analyzes its relationship with violation activities. It divides ownership structure into four dimensions, which includes degree of equity centralization, share ratio of management, share-holding structures of public and private corporations, realization of ultimate control rights. By using data of violation of disclosure regulations and empirical analysis method, this chapter examines the influence degree of four dimensions of ownership structure on violation activities. Research results show that a balanced ownership structure did not play a due restraining role on information disclosure activities. Among violation activities, the ratio of management share-holding was not an important influencing factor. Compared with non-private listed companies, private companies had a more tendency to violate disclosure regulations. The ratio of ultimate control rights had a significant negative relationship with disclosure violation activities, that is, the lower the ratio of control rights were, the more probably violation of regulations happened. These findings provide a new evidence of the relationship between ownership structure and activities of violating information disclosure regulations.ChapterⅤCharacters of board of directors and violation of information disclosure regulationsThis chapter, from the perspective of characters of board of directors, analyzes their influence on violation activities. Management control mechanism is the core part of control system of violation of information disclosure regulations and board of directors is the core institution which determines information disclosure quality of a corporation. This paper selects listed companies which were punished by CSRC or stock exchange from 2001 to 2005 as research samples and listed companies in the same industry and time period with similar asset scales as paired samples. It analyses the relationship between characters of board of directors and violation of information disclosure regulations from several aspects such as scale of board of directors, independence, professionalism and system of supervisory board. Research results show that among several characters of board of directors, combination of directors and managers, number and ratio of independent directors, setting of underling committees and operation of audit committee had significant restraining influence on violation of regulations, while scale and meeting frequency of board of directors did not have much influence. It is independence and professionalism of board of directors but not its scale and meeting frequency that constitute a key factor influencing violation of information disclosure regulations.ChapterⅥInternal control system and violation of information disclosure regulationsThis chapter analyzes basic theories of internal control, objective of internal control and relationships between internal control system on information disclosure and activities of violation of regulations. On the base of reviewing relevant theories, it analyzes the problem of internal control objectives and further the relationships between internal control effectiveness and information disclosure activities. The effectiveness is dependent on execution efforts of management who have internal control responsibilities. Periodic evaluation report and disclosure is a key to ensure the effectiveness of internal control.Finally, this chapter makes an empirical study on the relationships between internal control system on information disclosure and activities of violation of regulations. It finds that obligatory disclosure requirement regulated in Guide to Internal Control was not executed well, that is, their effects were not obvious. The disclosure just turned out to be formalistic and did not play a role distinguishing the quality of listed companies, especially regulation violated and non-violated companies.ChapterⅦPunishment of violation of information disclosure regulations and investor protectionThis chapter, from the perspective of relationships between punishment of violation of information disclosure regulations and investors'interests, analyzes market response to the punishment, influencing factors of investors'losses and problems of investors'civil compensation. Research results shows that there was a significant negative market response to the punishment of violation of disclosure regulations; the negative market response of private listed companies was significantly higher than that of non-private listed companies. Investors'losses of regulations violated companies even affected other companies in the same industry, generating a correspondent negative attack effects. As for the problems of investors'civil compensation, the chapter analyzes necessity and current situations of civil compensation system in securities market and points out existing main problems and resolving methods of the system. When establishing a civil compensation mechanism of securities market to fully protect investors'proper interests, it is necessary to completely consider current situations in China and do it in a planned and stepped way. When assuming responsibilities in securities market, the dominating role is administrative and criminal responsibility, with civil responsibility as supplement. It is more important to enforce punishment and restraining effects of administrative and criminal responsibility on activities of violation of regulations. The establishment of civil compensation system can better restrict the spread of violation activities, improve correct formulation of information disclosure concepts of the management, better protect investors'legal interests and provide a mechanism to guarantee the long-term and steady development of securities market.Investors'trust is the base to ensure the healthy development of securities market. When achieving the objective of a complete harmonized and sustainable development of economy and society, one of the most parts is the harmonized development of capital markets. This requires listed companies to raise their information transparency and supervision departments to reinforce establishment of information disclosure supervision system progressively. Only if all investors acquire information fairly, timely and completely, activities of violation of information disclosure regulations can be restricted effectively.