Industry and regional spillover effects of penalties for disclosure noncompliance among public firms

Abstract

This study investigates the industry-wide and regional spillover effects of penalties for noncompliance with information disclosure regulations, focusing on publicly listed firms in China. The analysis is based on panel data from Chinese listed companies, revealing that penalties imposed by the China Securities Regulatory Commission (CSRC) on noncompliant firms lead to significant improvements in the quality of information disclosure by other firms in the same industry or geographical region that were not subject to penalties. These spillover effects are found to be contingent on factors such as the competitive dynamics within the industry and the level of regional economic development. Furthermore, the results indicate that the impact of penalties on neighbouring firms is amplified when the publication cycle for penalty announcements is shorter, though the effect diminishes over time as the information becomes less salient. These findings contribute to the understanding of regulatory enforcement mechanisms and their broader influence on corporate transparency, highlighting the role of both industry and regional contexts in shaping compliance behaviour.