Government regulation and media supervision of publicly listed firms in China

Although public enforcement of security laws is essential for robust capital markets, political interference in developing countries hinders enforcement. Using a sample of regulatory enforcements in China between 2000 and 2010 along with a comparison group, we find that politically connected firms are more likely to commit fraud and that frauds committed by these firms are less likely to be detected. Furthermore, it takes much longer to complete the investigation process of these connected firms that committed fraud, and the penalty imposed on them is lighter. The welfare of minority shareholders is adversely affected by poor enforcement of security laws.