Is China's Securities Regulatory Agency a Toothless Tiger? Evidence from Enforcement Actions

53 Pages Posted: 30 Apr 2005

See all articles by Michael Firth

Michael Firth

Lingnan University - Department of Finance and Insurance

Gong-meng Chen

Hong Kong Polytechnic University - School of Accounting and Finance

Ning Daniel Gao

Hong Kong Polytechnic University - School of Accounting and Finance

Oliver M. Rui

China Europe International Business School (CEIBS)

Date Written: January 2005

Abstract

The China Securities Regulatory Commission (CSRC) is the regulatory body that enforces securities laws and regulations in the People's Republic of China. Somewhat akin to the SEC in the U.S., the CSRC carries out investigations to identify and prosecute securities fraud. The aim of this study is to provide some empirical evidence on the impact of the CSRC's enforcement actions. We find that enforcement actions have a negative impact on stock prices with most firms suffering wealth losses of around 1% to 2% in the five days surrounding the event. Moreover, we find that firms have a greater rate of auditor change, a much higher incidence of qualified audit opinions, increased CEO turnover, and wider bid-ask spreads. The negative stock returns and the costly economic consequences for firms suggests the CSRC has credibility and its actions have teeth.

Keywords: Regulatory enforcement, abnormal returns, economic consequences, China

Suggested Citation

Firth, Michael and Chen, Gong-meng and Gao, Ning Daniel and Rui, Oliver M., Is China's Securities Regulatory Agency a Toothless Tiger? Evidence from Enforcement Actions (January 2005). Available at SSRN: https://ssrn.com/abstract=711107 or http://dx.doi.org/10.2139/ssrn.711107

Michael Firth

Lingnan University - Department of Finance and Insurance ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
+852 2616 8160 (Phone)
+852 2466 4751 (Fax)

Gong-meng Chen

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong
+852 2766 7070 (Phone)

Ning Daniel Gao

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Oliver M. Rui (Contact Author)

China Europe International Business School (CEIBS) ( email )

699 Hong Feng Road
Pudong
Shanghai 201206
China
86-21-28905618 (Phone)
86-21-28905620 (Fax)

HOME PAGE: http://https://www.ceibs.edu/rui-oliver

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
494
Abstract Views
3,466
rank
62,985
PlumX Metrics