DOES SECURITIES REGULATION HAVE SPILLOVER EFFECT ON FOREIGN COMPANIES: EVIDENCE FROM THE ENACTMENT OF HFCAA

In May 2020, the United States passed the Holding Foreign Companies Accountable Act (HFCAA), imposing additional information disclosure requirements for foreign companies listed on the capital market. This legislation increases the potential risks of being delisted for Chinese concept stocks (CCS). Using a difference-in-difference method, we find that HFCAA generates negative spillover effect on China’s local capital market. Specifically, Chinese A-share companies within the same industry as the delisted CCS exhibit negative cumulative abnormal returns following the enactment of the HFCAA. Mechanism test reveals HFCAA negatively affects A-share companies in the same industry with the delisted CCS by reducing investor limited attention. Additionally, the spillover effect is more pronounced in firms with lower industry competition, higher financing constraints and located in regions with lower degree of marketization. This study contributes to the understanding of cross-border securities regulation effects by demonstrating the significant consequences of HFCAA.