Regulatory sanctions and stock pricing efficiency: Evidence from the Chinese stock market

摘要

Using the data (2001-2016) of the regulatory sanctions on listed companies in the Chinese A-share market, we investigate the impacts of securities supervision and the law-enforcing regulations upon stock pricing efficiency. Specifically, we find that the stock pricing efficiency of the sanctioned companies is significantly lower than that of non-offending companies; judging from long-term trends, the administrative supervision and law-enforcing regulations of China's regulatory authorities do not promote pricing efficiency in the stock market. On the contrary, these regulations tend to be associated with lower stock pricing efficiency in the long term. Moreover, when the regulatory authorities enforce laws and impose penalties, the stock pricing efficiency of the sanctioned companies is characterized by the inverted U-shaped dynamic change that first rises and then falls; that is, before the companies are sanctioned, pricing efficiency is improving; the nearer to the month of sanctions, the higher stock pricing efficiency; meanwhile, the pricing efficiency declines significantly after sanctions. This dynamic process of pricing efficiency shows that regulations and law-enforcing actions can promote the stock pricing efficiency in the short term, but this effect is gradually weakened in the long term. Finally, the impact of regulatory enforcement on pricing efficiency vanes according to the types of violations. For companies with fewer irregularities, the pricing efficiency of companies during law enforcement has obvious inverted U-shaped dynamic change characteristics, while for companies with heavier irregularities, the dynamic change characteristics are not so obvious.