AbstractThe market of a successful financial centre must be efficient, orderly, and fair, which requires that investor protection rules be enforced effectively. While a substantial literature exists promoting privately driven enforcement of investor protection rules, there is a growing consensus that enforcement action by public bodies is likely to be more important for most markets than privately initiated litigation. Hong Kong exemplifies this point. In Hong Kong, public authorities carry almost the entire burden of enforcing corporate and securities laws. Yet Hong Kong functions at a high level of quality globally despite operating a market in which most companies are foreign-incorporated—often originating from jurisdictions with reputations for governance that are middling at best—and trading takes place in multiple currencies. To revisit the debate on the determinants of effective corporate and securities law enforcement, this paper evaluates the enforcement of investor protection laws in Hong Kong. The paper first examines the institutional context, presenting key corporate and securities regulation and explaining avenues for private and public actions. It looks at the powers and competencies of the relevant supervisory authorities, including the stock exchange, which has a quasi-public role in regulating the market. Then, using publicly available data supplemented through interviews with agency staff, the paper presents Hong Kong’s enforcement “inputs” (funding and staffing) and “outputs” (actions and sanctions) for the main public enforcers. We find evidence that the Hong Kong public enforcement model effectively disciplines even its dangerous environment of foreign companies, controlling shareholders, and complex, international groups, and might be able better to do so exactly because of a focus on public, rather than private, enforcement.
Minority Shareholders' Control Rights and the Quality of Corporate Decisions in Weak Investor Protection Countries: A Natural Experiment from China