Can High-Quality Interactions Reduce the Regulatory Inquiries Received by Firms? Evidence from Interactive Investor Platforms in China

Utilizing data from online interactive investor platforms (IIPs) in China, we find that high-quality interactions between investors and listed companies significantly reduce the incidence of regulatory inquiries. This reduction is primarily achieved through alleviating information asymmetry and enhancing corporate governance. Our conclusions have proven robust across various tests. Additional analysis finds that a higher response ratio, greater detail in responses, clearer readability, and timeliness in replies correlate with fewer regulatory inquiries. The reduction effect is more pronounced in firms with weaker external monitoring and more sophisticated board secretaries. Furthermore, our findings indicate that interactions on IIPs can mitigate adverse market reactions to regulatory inquiries. These insights underscore the importance of fostering transparent and effective communication channels between investors and firms, highlighting their significant implications for improving the information environment in capital markets.