Controlling Misrepresentation in Securities Markets: Is Private Enforcement Trivial in China?

Abstract

This chapter resulted in three key findings about public enforcement, and private enforcement of securities law in China. First, based on empirical evidence, public enforcement and private enforcement of securities law serve different functions. The former cures vertical agency costs, and the latter cures horizontal agency costs. Second, the inefficiency of private enforcement in China can be partly attributed to the diversified allocation of judiciary resources, which exacerbates the courts’ disadvantage stemming from a lack of expertise, especially compared to the centrally organized public regulator. Third, the comparison between private enforcement in China and the US proves once more the standard argument on China’s private enforcement of securities law. It illustrates that private enforcement in China is under-developed. Providing more investor-friendly legal institutions is an important step in order to improve private enforcement. However, fostering a more balanced financial media environment, and enhancing the accessibility of data on judiciary decisions, is equally important in prompting private enforcement in China.

Keywords: Public enforcement, Private Enforcement, China's Securities Law

JEL Classification: K22