Executive Legal Responsibilities, Investor Protection, and High-Quality Development of the Bond Market: Evidence from the Implementation of the New Securities Law in China
YU Minggui, AN Jianfeng, ZHANG Mengmeng
School of Finance, Zhongnan University of Economics and Law; Economics and Management School, Wuhan University
Summary:
China has long attached great importance to the construction of a sound legal environment in the financial market and the protection of investors' interests. In the bond market, directors, supervisors, and senior executives (collectively referred to as “DSS”) serve as key agents responsible for corporate governance and information disclosure of bond issuers, as well as for ensuring the execution of bond covenants. In order to strengthen the legal liability of directors, supervisors, and senior managers, Article 82 of the new Securities Law, which came into effect on March 1, 2020, added a new provision requiring DSS to sign a commitment in the prospectus for corporate bond issuance. That is, the directors, supervisors, and senior managers of bond issuers must sign and commit on the bond offering prospectus for corporate bond issuance that they will “disclose information in a timely and fair manner, and ensure that the disclosed information is true, accurate, and complete.” Otherwise, they will bear corresponding joint legal liabilities. The significance of this provision is not limited to the signature behavior of directors, supervisors, and senior managers and information disclosure itself. Its more important practical significance lies in the fact that, against the background of the registration-based bond issuance system, by enhancing the deterrence of the rule of law to restrain the behavior of directors, supervisors, and senior managers, the protection of investors can be strengthened, thus promoting the high-quality development of the bond market. There is a character of multiple regulatory bodies in China's bond market. Corporate bonds and enterprise bonds have differentiated requirements for DSS to sign their commitments. Corporate bonds supervised by the China Securities Regulatory Commission (CSRC) require DSS to sign their commitments, while enterprise bonds supervised by the National Development and Reform Commission (NDRC) do not. Based on this divergence, this paper takes the implementation of the new Securities Law as an exogenous shock, using corporate bonds and enterprise bonds publicly issued in the exchange bond market from 2016 to 2021 as samples, and uses the difference-in-differences (DID) method to study the impact of strengthening the legal responsibility of DSS on bond financing costs. It was found that strengthening the legal responsibility of directors, supervisors, and senior managers can significantly reduce bond financing costs by improving corporate governance and alleviating information asymmetry. This means that strengthening the legal responsibility of DSS is an important guarantee for promoting the development of direct financing. Based on the research findings of this paper, we propose two policy recommendations. Firstly, efforts should be made to further unify the regulation of the bond market. In the process of building a unified bond market, some beneficial regulatory measures can be uniformly applied to different bonds to reduce bond financing costs. Secondly, further strengthen the legal deterrence and investor protection. In order to establish a sustainably effective bond market accountability system, in addition to strengthening the legal responsibilities of DSS, regulatory authorities can further strengthen the legal responsibilities of major shareholders, underwriters, and credit rating agencies, effectively increase the cost of illegal activities, effectively protect the interests of investors, continuously reduce bond market frictions, and lower bond financing costs. This paper has important policy significance for further promoting unified supervision of the bond market, strengthening investor protection, and promoting high-quality development of the bond market.
余明桂, 安剑锋, 张萌萌. 董监高法律责任、投资者保护与债券市场高质量发展——来自新《证券法》实施的证据[J]. 金融研究, 2024, 534(12): 152-169.
YU Minggui, AN Jianfeng, ZHANG Mengmeng. Executive Legal Responsibilities, Investor Protection, and High-Quality Development of the Bond Market: Evidence from the Implementation of the New Securities Law in China. Journal of Financial Research, 2024, 534(12): 152-169.
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