Private enforcement of securities law in China: an empirical analysis of the SPC’s 2002 Notice on A/B share markets

This chapter employs a ‘shock-based’ research design to analyse the differences in the effects of the 2002 Notice concerning private securities litigation issued by the Supreme People’s Court on stock price performance in A/B_share markets. Using a sample of 162 twin A/B_shares issued by 81 listed firms, we find that the portfolio of B_shares, which are treated and held in large volume, obtains a significant positive treatment effect of 2.08 per cent relative to that of A_shares over a 3-day event window. In addition, a placebo test demonstrates that there is no difference in cumulative returns between A_shares of firms issuing both A_shares and B_shares and those of matched firms issuing only A_shares. Finally, we look into the determinants of the abnormal return between A/B_shares issued by the same firms and find that court efficiency is positively correlated with the magnitude of the abnormal return. Rational investors expect that compensation from private litigation will be determined by the costs of using the judiciary system.