Abstract:
China's financial market is dominated by public regulation and enforcement mechanisms. How to promote the better functioning of private enforcement mechanisms such as civil compensation is an important issue. As an important exploration of private enforcement in China's financial legal system, the securities dispute mediation system may, on the one hand, serve as a deterrent against corporate misconduct, but on the other hand, it may also provide shelter for managerial opportunism. Using the pilot implementation of the securities dispute mediation system in 2016 as an exogenous policy shock, this paper constructs a difference-in-differences model to examine the impact of the securities dispute mediation system on corporate misconduct. The study finds that the introduction of the securities dispute mediation system, characterized by low cost and high efficiency, significantly lowers the barriers to investor right protection, enhances the enthusiasm of small and medium-sized investors to defend their rights, and leads to more violators being held legally accountable and required to pay economic compensation. This raises the cost of violations for companies and reduces the likelihood of misconduct. The heterogeneity analysis indicates that for companies located in cities with higher investor protection costs and lower compensation efficiency, the mediation system is more advantageous than the traditional litigation system and more effective in curbing corporate violations. For companies with higher ownership concentration by major shareholders, greater financial risk, lower institutional ownership, and less analyst coverage, where the external governance environment is weaker and the risk of controlling shareholder expropriation is higher, the deterrent effect of the securities dispute mediation system on such corporate violations is more pronounced. The paper provides insights for accelerating the development of financial legal governance and regulating the behavior of listed companies.
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