Study On Information Content Of Punishment Bulletins

The restriction of healthy development of Chinese stock market is that the listed companies' operations are not standardized and always violate regulations. A series of violations are a heavy blow to investors'confidence and destroy the normal order of stock market. In order to maintain the normal order of stock market and protect investors' rights, China securities regulatory commission and it's subsidiary stock exchange investigate the violation companies based on securities law, company law and the authority of state council, and announce the punishment bulletins to stock market. The punishment bulletins contains information content such as the law clause violated, the duration of violation behavior and the object of penalty which reveal the severity of the violation behavior. Taking "kelong event" as an example, China securities regulatory commission announced four copies of files which indicated that accumulative time of kelong's violation behavior was up to 10 years, and 40 of it's management layer were punished. On the other hand, in the same year, "Gujingong event" broke, whose violation behavior cumulated to 2 yeas and one of its management layer was punished.The listed company's interest-relevant groups contains investors, CPA, government's supervision department, creditor, supplier, customer and it's employees. The violation behavior will lead to potential loss which is positive correlation to the severity of the violation behavior. We choose two perspectives from investors and cpa to study the reaction to punishment bulletins. Investors and cpa has different interests demand. As a rational economic man, investors hope to obtain maximum investment income and avoid risk. After the announcement of punishment bulletins, investors decide to buy or sale stocks, so the severity of the violation behavior will affect the stock price. Cpa decides the receivable risk premium through risk assessment, and hopes to obtain maximum profit and control the risk to a reasonable range. So a company's violation behavior will affect cpa's audit price and and audit opinion.This dissertation studies the punishment bulletins and quantify the information in it such as supervision institution, accumulative time of violation behavior, chairman's violation behavior, the ratio of director punished, the ratio of independent director punished. We test the reaction of investor and cpa to these variables, and we draw following conclusionsFirstly, Cpa's audit pricing is positive correlation to supervision institution, accumulative time of violation behavior, the ratio of director punished and the ratio of independent director punished, which indicates that Cpa take the information in the punishment bulletins into consideration. The probability of receive modified opinion is positive correlation to the ratio of director punished, the ratio of independent director punished when Cpa express audit opinion. Comparing with audit pricing, auditors are more prudent when they express audit opinion. The more director and independent director are punished, the more serious the problem of internal control exist which leads to receive modified opinion.Secondly, the listed companies' violation behavior has negative influence on its stock price, but this dissertation does not find this effect is significant. The reason is maybe that investors' reaction to violation behavior is not the same. Further study shows that investors are sensitive to the fact if chairman involved in the violation behavior, because CAR and AR of the companies whose chairman is involved in violation behavior is significantly lower than other companies'. But investors do not sensitive to supervision institution, because CAR and AR of these companies'which is punished by China securities regulatory commission is not significantly lower than other companies'. CAR of companies whose independent directors are punished is significantly lower than other companies, but we do not find the same effect of AR.