What Motivates the Securities Regulators? an Empirical Assessment of Securities Enforcement Actions in China 1998-2016

Chao Xi (The Chinese University of Hong Kong)

Abstract: Little is known about what motivates primary Chinese securities regulators, viz., the China Securities Regulatory Commission, the Shanghai Stock Exchange, and the Shenzhen Stock Exchange. This research draws on a unique, hand-collected dataset on all disclosed securities enforcement actions, both formal and informal, taken against securities violations by the Chinese securities regulators during the period from 1998 through 2016. It offers a rare glimpse into the intensity of enforcement actions, both market-level and firm-level, in China. It shows, among other things, that on average 5.28 enforcement actions have been taken during the period under investigation against a firm that has been targeted, and that 14.26% of the sample firms have been targeted once, 16.62% targeted twice, and 69.13% targeted three times or more. When it comes to the determinants of Chinese securities enforcement practices, this research shows empirically that (a) less enforcement actions and more lenient enforcement actions are likely to be taken against firms of larger size, firms that are controlled by the state, and firms that demonstrate a higher level of political embeddedness; and (b) a greater degree of cooperation with the securities regulators and a closer personal bond with the securities regulators are likely to reduce the severity of enforcement actions, but are unlikely to minimize the likelihood of being targeted in the first place. This research has been supported by a General Research Fund (CUHK-452913) from the Hong Kong SAR Research Grants Council.