Understanding Public Enforcement of Securities Law in China: An Empirical Analysis of the Enforcement Outcomes of CSRC's Regional Offices

This study examines the public enforcement (PE) of securities law in China. We exploit the external positive shock to enforcement intensity due to the reform decentralizing the authority to impose administrative sanctions (AS) and show that shares in the pilot project experience statistically significant, but economically insignificant, abnormal returns (AR). Furthermore, we examine the market reactions to PE actions against informational misconduct and find that shares receiving AS suffer an average AR of approximately -12.03% over the (-1,5) event window, whereas those receiving non-AS experience economically insignificant AR. Next, we investigate the impacts of PE actions on the external debt financing, and show a significant decrease in external debt financing associated with firms receiving AS compared to those receiving non-AS. Finally, for the subsample of shares sanctioned by ROs, we find that firm size significantly reduces the likelihood of receiving AS, but neither governmental ownership nor political participation matters.