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Revisiting the stock market reactions to the private securities litigation against informational misconducts in China

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  • Xu, Wenming
  • Wu, Zhicheng
  • Cai, Jianjun

Abstract

The recently revised Securities Law in December 2019 and subsequent judicial interpretations issued by the Supreme People's Court (SPC) improved the efficiency of private securities litigation in China. Such a milestone legal reform is also reflected by Chinese courts awarding historically high amount of damages to aggrieved investors. These events are used as the sources of exogenous shocks to both de jure and de facto private enforcement intensity, and the stock market reactions to these events are examined. To control for potential self-selection bias, a sample of “culpable” listed companies is employed. Our sample companies react most significantly to the first game-changing court decision in “Wuyang Judgment”, in which the defendants were ordered to pay more than 1 billion damages. Such effects are observed in addition to the previous changes of “on-the-book” laws of private securities litigation. Finally, the magnitude of the estimated abnormal return is positively correlated with the local judiciary quality proxied by the percentage of cases disclosed, which suggests that the market expects that listed companies in regions with high-quality adjudication should be liable to pay higher damages.

Suggested Citation

  • Xu, Wenming & Wu, Zhicheng & Cai, Jianjun, 2024. "Revisiting the stock market reactions to the private securities litigation against informational misconducts in China," International Review of Economics & Finance, Elsevier, vol. 95(C).
    • Handle: RePEc:eee:reveco:v:95:y:2024:i:c:s1059056024004969
    DOI: 10.1016/j.iref.2024.103504
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