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Regulator as a minority shareholder: How does public-plus-private enforcement affect investment-to-price sensitivity?

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  • Hu, Yi
  • Jin, Shuchang
  • Xiong, Zhitao

Abstract

In February 2016, the China Securities Regulatory Commission (CSRC) launched a pilot program for investor protection, allowing the China Securities Investor Service Center (CSISC), an affiliate of the CSRC, to hold 100 shares of listed companies in the pilot regions. This pilot program combines public and private enforcement by allowing a regulatory agency to participate in corporate governance as a minority shareholder. Leveraging the enforcement of the CSISC shareholding program, we investigate the influence of the public-plus-private enforcement on investment-to-price sensitivity. We find that the CSISC shareholding program significantly increases the investment-to-price sensitivity of pilot firms. We further show that the CSISC shareholding program facilitates managerial learning from stock prices by improving corporate governance and increasing the amount of private information in stock prices. In addition, we find that the impact of the CSISC shareholding program, as a form of public-plus-private enforcement, is unlikely to be distorted by political connections and is also unlikely to crowd out the oversight from minority shareholders. We provide direct evidence on the enforcement theory of regulation and expand the economic consequence of the CSISC shareholding program from the perspective of investment-to-price sensitivity.

Suggested Citation

  • Hu, Yi & Jin, Shuchang & Xiong, Zhitao, 2025. "Regulator as a minority shareholder: How does public-plus-private enforcement affect investment-to-price sensitivity?," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 1790-1815.
    • Handle: RePEc:eee:ecanpo:v:85:y:2025:i:c:p:1790-1815
    DOI: 10.1016/j.eap.2025.02.025
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    More about this item

    Keywords

    China securities investor services center; Investment-to-price sensitivity; Corporate governance; Managerial learning;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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