Regulatory Minority Shareholders and Sustained Disclosure Quality: Dual Governance Channels in China

ABSTRACT This paper takes the A‐share listed companies in China's Shanghai and Shenzhen stock markets from 2014 to 2023 as the sample to study the impact of the exercise of rights by the China Securities Investor Service Center (hereinafter referred to as the “Investor Service Center”) on the quality of corporate internal control information disclosure and its mechanism of action. The study finds that the exercise of rights by the Investor Service Center significantly improves the quality of corporate internal control information disclosure, and this impact is long‐term and sustainable. Through the mechanism test of internal and external information governance channels, this paper finds that the exercise of rights by the Investor Service Center promotes enterprises to improve the quality of internal control information disclosure through internal and external information governance methods such as restraining the opportunistic behavior of corporate insiders, enhancing accounting conservatism, and attracting the attention of financial media and investors. In addition, the heterogeneity analysis shows that the effect of the exercise of rights by the Investor Service Center varies significantly depending on the way of exercising rights and the response status of listed companies. The research of this paper provides new empirical evidence for understanding the governance effect of the exercise of rights by the Investor Service Center, and also provides policy implications for improving the investor protection mechanism with Chinese characteristics.