Law environment, government regulation and implicit contract: Empirical evidence from the scandals of China’s listed companies

CHEN Donghua; ZHANG Tiesheng; LI Xiang

doi:10.1007/s11459-008-0028-2

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Front. Econ. China ›› 2008, Vol. 3 ›› Issue (4) : 560-584. DOI: 10.1007/s11459-008-0028-2

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Law environment, government regulation and implicit contract: Empirical evidence from the scandals of China’s listed companies

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Abstract

In China’s transitional economy, government regulation could be a substitute for the lack of law mechanism and regulator’s power could spill over into other areas not regulated. Then, theoretically it could construct implicit contracts. For example, China Securities Regulatory Commission (CSRC) has the rights to choose initial public offering(IPO) firms among applicants. It might construct implicit contracts between CSRC and local governments if the former consider the frequency and the severity of the scandals among different areas. Local governments could make decisions on whether and how much to implement the implicit contracts.

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law environment / government regulation / implicit contract / corporate scandal

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CHEN Donghua, ZHANG Tiesheng, LI Xiang. Law environment, government regulation and implicit contract: Empirical evidence from the scandals of China’s listed companies. Front Econ Chin, 2008, 3(4): 560‒584 https://doi.org/10.1007/s11459-008-0028-2