Beyond Borders: The Holding Foreign Companies Accountable Act and Its Role in Enhancing Global Market Transparency and Investor Confidence
Steve Lin, Ran Ling, Zhenfeng Liu, Ling TuoABSTRACT
This study examines the impact of the Holding Foreign Companies Accountable Act (HFCAA) on foreign private issuers (FPIs) listed in U.S. markets. Using a sample of more than 600 FPIs from 46 jurisdictions, we analyze investor responses across three phases of the HFCAA regulatory cycle: introduction, enforcement, and international cooperation. We document negative market reactions during the introduction and enforcement phases but positive reactions following cooperation agreements, generating net gains across the full set of events. These effects are driven primarily by Chinese FPIs. Cross-sectional evidence shows that noncompliant FPIs from countries with stronger institutional frameworks and higher audit and reporting quality experienced less severe price declines, underscoring the moderating role of home-country institutions and firm-level characteristics. Overall, the HFCAA functions as a source of regulatory risk and as a catalyst for improved transparency. These findings provide timely insights into how global investors interpret regulatory shocks to cross-border oversight.
JEL Classifications: G15; G38; M48.