The impact of corporate governance and external audit on compliance to mandatory disclosure requirements in China

The Chinese government has tried to improve corporate governance and the quality of external audits. To assess the effect of these regulatory changes, we quantify the impact of corporate governance and external audits on compliance to mandatory disclosure requirements. Our study uses a direct measure of compliance published by the Shenzhen Stock Exchange (SZSE) from 2001 to 2007. Our findings show that auditor opinions increase the compliance to mandatory disclosure requirements. Based on factor analysis, we also find that improved internal governance led to higher compliance to disclosure requirements. The external governance environment, measured by the degree of institutional development, had a positive effect on firms’ compliance to disclosure requirements.