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Unintended consequences of securities regulation: Stock value loss upon potential involuntary delisting in Hong Kong

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  • Lai, Kam-Wah
  • Leung, Patrick W.

Abstract

This paper shows how stock prices in Hong Kong were crashed by an unexpected regulatory proposal to delist very low-priced stocks, with no discussion of other mechanisms for trading them. The results of this analysis, which are robust to various sensitivity tests, show that stocks trading below the proposed cutoff before the proposal were more likely to experience negative cumulative abnormal returns than other stocks, and that after the event firms were likely to undertake reverse stock splits to avoid future delisting, even though the document was withdrawn owing to public outcry. In general, this paper illustrates the importance of drafting and implementing regulation carefully to avoid unintended reaction by investors and minimize their economic losses.

Suggested Citation

  • Lai, Kam-Wah & Leung, Patrick W., 2018. "Unintended consequences of securities regulation: Stock value loss upon potential involuntary delisting in Hong Kong," Global Finance Journal, Elsevier, vol. 37(C), pages 219-226.
    • Handle: RePEc:eee:glofin:v:37:y:2018:i:c:p:219-226
    DOI: 10.1016/j.gfj.2018.06.001
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    More about this item

    Keywords

    Penny stocks; Securities regulation; Stock illiquidity; Involuntary delisting;
    All these keywords.

    JEL classification:

    • K20 - Law and Economics - - Regulation and Business Law - - - General

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