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Project Details
Funding Scheme : Early Career Scheme
Project Number : 24613819
Project Title(English) : Soft Regulation and Corporate Governance in China 
Project Title(Chinese) : 中國的軟規制與公司治理 
Principal Investigator(English) : Prof Zeng, Si 
Principal Investigator(Chinese) :  
Department : Faculty of Law
Institution : The Chinese University of Hong Kong
Co - Investigator(s) :
Panel : Humanities, Social Sciences
Subject Area : Social and Behavioural Sciences
Exercise Year : 2019 / 20
Fund Approved : 366,656
Project Status : On-going
Completion Date : 19-2-2022
Abstract as per original application
(English/Chinese):
This proposed project aims to study the use of “soft regulation” employed by regulators and stock exchanges in China to curb wrongdoings by corporations. Soft regulatory measures are not legally binding and not compulsory. They rely on persuasion rather than legal sanctions as enforcement strategies. An important soft regulatory measure used in corporate governance in China is the letter of enquiry (LoE). In 2014, the two stock exchanges in China started to employ LoEs to address many decisions made by listed corporations, including distribution of dividends, issuance of new shares, executive compensation, related-party transactions and adoption of takeover defenses. These LoEs merely pose questions to listed corporations on whether their decisions promote shareholder welfare. Apart from the LoEs, regulators often use “interviews” or “informal conversations” to regulate the conduct of listed corporations. Current studies have neither provided an adequate explanation for the development of LoEs nor a sufficient evaluation of the strengths and weaknesses of this regulatory approach in developing countries such as China. The objective of the first part of this project is to present the basic facts of the use of soft regulation in corporate governance and the responses by corporations in order to provide an overview of the practice of this regulatory method in China and to evaluate whether this regulatory technique is effective overall. The major question in the second part is why soft regulation is effective or ineffective and how it affects the decisions made by corporations. The LoEs may be effective because they impose pressure on corporations by affecting the prices of their stocks. Corporations may also comply with the soft regulation because they believe it is the right thing to do. This part will collect evidence to examine different mechanisms through which these measures affects corporate decisions. The third part aims to evaluate the importance of soft regulation in the context of China’s special institutional and market environment. A comparative study will be conducted to examine the differences in the scopes and effects of soft regulation between China and certain developed countries and to identify the major factors that may explain these differences, including legal origin, the capacity of court and legislature, and the ownership structure of corporations in these different countries. Based on the above empirical and theoretical analysis, the final part will provide normative implications on how China may better improve the current regime and promote corporate governance in China.
本項目旨在研究中國監管機構和證券交易所採用的“軟規制”措施。軟規制措施不具有法律約束力與強制力。監管機構依靠說服而不是法律制裁作為執法手段。在中國公司治理中使用的壹項重要的軟監管措施是證券交易所的問詢函或關註函。從2014年起,中國的兩家證券交易所開始采用問詢函來監管上市公司的許多決策,包括分配股息,發行新股,高管薪酬,關聯交易和採用收購抵禦措施。這些問詢函只是向上市公司提出有關其決策是否促進股東福利的問題,而非對上市公司的懲罰。除了問詢函以外,監管機構經常使用“訪談”或“非正式對話”來規範上市公司的行為。目前的研究既沒有為問詢函的發展提供充分的解釋,也沒有充分評估這種監管方法在中國等發展中國家的優勢和劣勢。
Research Outcome
Layman's Summary of
Completion Report:
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  SCREEN ID: SCRRM00542