Sharpened “Real Teeth” of China's securities regulatory agency: Evidence from CEO turnover

Abstract

This study examines the real impacts of the China Securities Regulatory Commission's (CSRC) enforcement actions on CEO turnover in China's fully circulated market. Using data on Chinese publicly listed firms from 2008 to 2022, we find that misconduct behavior alone does not directly lead to CEO turnover. In contrast, CSRC's enforcement actions elicit significant negative stock market reactions for both SOEs and non-SOEs post-2016 and substantially increase the likelihood of CEO turnover, with a notably larger impact on non-SOEs. Furthermore, enforcement actions involving more severe punishments and targeting information disclosure violations and operational misconduct are more effective at compelling CEOs to step down. Potential channels through which external regulatory actions influence firms' CEO replacement decisions include reducing agency costs and enhancing information transparency. These findings suggest that the “teeth” of China's securities regulatory agency now function primarily through market-based mechanisms rather than administrative force, and these “real teeth” are being sharpened by ongoing regulatory reforms.