Article

Journal of Business Ethics

, Volume 95, Issue 2, pp 337-359

Reactivity and Passivity After Enforcement Actions: Better Late Than Never

  • Shujun DingAffiliated withYork University
  • , Chunxin JiaAffiliated withPeking University
  • , Yuanshun LiAffiliated withRyerson University
  • , Zhenyu WuAffiliated withDepartment of Finance and Management Science, N. Murray Edwards School of Business, University of Saskatchewan Email author 

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Abstract

We examine the dynamics between enforcement actions and the responses from both the board of directors and supervisory boards amid China’s governance reform. Rather than examining determinants of fraudulent activities, we investigate, after enforcement actions are imposed, whether the board of directors and supervisory boards react differently, and whether their different reactions play a role in preventing future occurrences of frauds. We find that both boards react to enforcement actions, but only the responses from the board of directors help us curb future enforcements under certain circumstances. The supervisory board fails to play any role in preventing future enforcements, even though it is one of the two monitoring mechanisms in the listed companies. Policy implications are discussed.

Keywords

corporate governance enforcement actions fraud dual-board structure