Lawlessness And The Alternative Investor Protection Mechanism

After some firms began to issue stocks in the early 1980s, Chinese Securities Market has got a great achievement in the past; especially the number of listing companies is almost ahead of the international large securities markets and the scale is not less than them. According to Law and Economics theory, behind the rapidly developed stock market there is a strong investor protection mechanisms. However, the protection provided by the law in China doesn't work effectively. So there must be a substituted investor protection mechanism in the institution arrangement of Chinese stock markets. The Domestic literature on the law and its alternative mechanisms on Chinese Securities Market are too few, The foreign researchers' studies were building on the developed securities markets, so they had little effect on explaining the emerging market like China and the practice-directing power are more limited.This article holds that the quota system as the core administration governance mechanisms can substitute for the law to play a role. Followed 1 illustrate it in three aspects. Firstly, build a mathematical model and carry out comparative static analysis to show the selection process of China's listed companies in the operation of the mechanism of the quota system. Secondly, argues that the quota system can collect scattered information, provide incentives to stimulate the inter-regional competition, and played a role. Thirdly, analysis the reason that why the quota system gives way to a formal governance mechanism and it is only a temporary alternative mechanism.Finally this paper concludes that: the quota system played an important role when the law is absent, and it resulted in abnormal development of the securities market. This will also provides a useful complement to the law and securities market theory - Legal system on the development of the securities market is important, but not the only one.