Jurisdiction And Misstatement Securities Civil Litigation Efficiency

Traditional law and finance theory cannot explain China's judicial system and finance development.This study uses the regionally decentralized authoritarian(RDA)regime to examine the judicial practice of misstatement securities civil litigation in China's capital market.Specifically,this paper examines whether the selectively authorized jurisdiction arrangement by the Supreme People's Court could raise the efficiency of misstatement securities civil litigation.The selectively authorized jurisdiction arrangement means that,in the misstatement securities civil compensation case,the Supreme People's Court authorizes the jurisdiction to intermediate People's Court of the provincial cities,capital cities,separate-planning cities and special economic zone where the listed firms located.This paper examines the impact of selective jurisdiction arrangement on litigation efficiency from the following three parts.First,the litigation process of misstatement securities civil compensation cases;second,firms' accounting information quality after the establishment of misstatement securities civil litigation system;and third,investors' market reaction after the cancellation of pre-procedures of securities civil litigation.The study is comprised of three major parts.First,the impact of jurisdiction arrangement on litigation process of misstatement securities civil compensation cases.We comprehensively describe the time and geographical distribution of misstatement securities lawsuits.The results show that with the development of investor's awareness of rights protection and the improvement of judicial environment,the number of securities lawsuits increased and the proportion of investors to sue grows steady.What's more,the empirical results show that different jurisdiction does not increase the probability of firms being sued;comparing to firms locating in the same place with juridical court,when the firm locating in a different city from juridical court,investors experience much shorter case filing time and longer trial time.Further,investors get more compensation and less rejection if the firm and juridical court are in different cities.Second,we use the Difference-in-Difference(DID)method to examine the impact of jurisdiction arrangement on firms' accounting information quality after the establishment of misstatement securities civil litigation system.We find that,after year 2002,the level of earnings management,the probability of financial restatement and accounting irregularities significantly reduced.Moreover,compared with local firms,the accounting information quality of firms under different jurisdiction is much higher after the implementation of the new litigation system.Third,we use event study to test the impact of jurisdiction arrangement on investors' market reaction of cancelling the litigation pre-procedures.The results show that the market return went up after event date,meaning that investors are optimistic at the cancelation of litigation prerequisites.Further,comparing to local firms,the cumulated abnormal return of firms of different jurisdiction is higher during event window.The main innovations of this research are as follows.First,from the perspective of local decentralization,this paper examines the internal effect of the selective authorization of the jurisdiction by the Supreme People's Court on misstatement securities civil litigation efficiency.Under the institutional background of RDA regime,this paper proves that the selective authorization can improve the efficiency of securities civil litigation,and can aleviate the problem of local protection.Second,form the perspective of misstatement securities civil lawsuits,this paper discusses the common view that China's legal environment and the efficiency of law enforcement is low from the previous literature.This paper points out that the problem of judicial local protection does exist under some conditions.However,the implementation of misstatement securities civil litigation system has achieved certain effect.After the implementation of the securities litigation system,a large number of investors receive compensation through litigation process.In addition,under the judicial reform,the filing time lag is becoming shorter and the pre-procedures cancelled.Third,this study complements the research on listed firms' securities litigation.There are relatively few studies on civil litigation in China's securities market using a relatively large sample.This paper fills the research gap in this area.