The Market Reaction To Disclosure Violation Under The Delisting System Reform

Disclosure violation of companies, such as false records, misleading statements or major omissions problem, have been noticed by the society. In order to promote the healthy development of capital market, the realization of the securities market principle of "openness, impartiality and fairness", securities regulators reform the delisting system in 2014. The new delisting system specifies that, if the company is punished by the securities and considered a major violation, or found guilty after being transferred to public security organs because of information disclosure illegal, the company will be forced to be delisted.After the enforcement of "New delisting system", the companies alleged disclosure violations will face more stringent administrative punishment, or forced to end its stock traded on the market. Once be forced to withdraw from the traded market, the liquidity of the stock is lost, investors will suffer a great loss. And the company is hard to relist in China. Along with the launch of the "new delisting system" and implement, if market can timely discern and react to the information disclosure illegal delisting of the companies, and the new system can realize regulators expected regulation goal or not, this paper will research the problems. This paper uses event study to empirically research the relationship between the market reaction and the announcement, by taking alleged disclosure violations or violation of securities laws and regulations companies as samples. By analyzing the relevant information after arrived in the market, the change of stock price is examined as the market reaction and the regulation of the regulatory effects.By comparing and analyzing the relationship between market reaction and the new delisting system, it is found that the market negatively react to the companies after the delisting system reform. It is also found that, the response is concentrated on two days, such as t=0 and t=1. On March 28,2015, Bo yuan (600656) was suspected in the case of information disclosure violation by the CSRC, and was transferred to public security organs. Bo yuan became the first delisted company since the delisting system reform took effect, due to the serious illegal information disclosure. After the announcement of Bo yuan which is transferred to public security organs by the CSRC, the investors had a significantly negative reaction to the companies which are being inspected by securities regulatory commission. The negative reactions of market also show the effectiveness of the securities regulators supervisory punishment and "deterrence".