Is China's securities regulatory agency a toothless tiger? Evidence from enforcement actions

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 US, 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 1-2% in the 5 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 suggest that the CSRC has credibility and its actions have teeth.