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Monitoring and governance: The impact of random inspection on goodwill in China

Author

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  • Xia, Wenli
  • Wang, Jingyu
  • Ou, Yafei
  • Qin, Xiangkai

Abstract

Utilizing "Double Random" Inspection System implemented in 2015 as an exogenous shock, this study investigates its effect on excess goodwill among Shanghai-Shenzhen A-share listed companies from 2016 to 2022. Our findings demonstrate that the "Double Random" inspection effectively reduces excess goodwill by mitigating managerial agency issues and information asymmetry. Heterogeneity tests indicate that the curbing effect is stronger for companies with ineffective internal controls and those facing lower product market competition. Moreover, the governance effect is significantly more substantial in non-state-owned enterprises (non-SOEs) than in their state-owned counterparts. Our research contributes to the literature on the governance effects of the "Double Random" inspection and offers robust empirical support for this regulatory innovation in China's capital markets. The findings offer valuable insights for other emerging markets seeking to implement similar regulatory innovations to enhance market governance.

Suggested Citation

  • Xia, Wenli & Wang, Jingyu & Ou, Yafei & Qin, Xiangkai, 2025. "Monitoring and governance: The impact of random inspection on goodwill in China," Finance Research Letters, Elsevier, vol. 86(PE).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pe:s1544612325020288
    DOI: 10.1016/j.frl.2025.108774
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