An Empirical Analysis of the Public Enforcement of Securities Law in China: Finding the Missing Piece to the Puzzle

Abstract

China’s public enforcement regime has long been blamed for insufficiently and ineffectively deterring securities crimes. We collect data on public enforcement outcomes from documents disclosed by listed firms and find that the outputs of law enforcement have increased significantly since 2011, thanks to the efforts of the China Securities Regulatory Commission (CSRC)’s 38 regional offices. However, due to the lack of a reliable private enforcement regime and the limitations of monetary penalties, the general enforcement of securities law is still regarded as weak. In addition, there exists a salient pattern of selective enforcement. Privately owned listed firms face a harsher regulatory environment in terms of both the number and severity of sanctions from regulators, whereas state-owned, and particularly central-government-controlled firms enjoy the most favorable treatment, although the gap has been reduced in recent years.

Keywords: Public enforcement, Securities law, Empirical analysis, CSRC, Regional offices, Stock exchanges, China

JEL Classification: G18, G28, G32, G34, G38, K22