What Shapes Private Securities Enforcement in China? An Empirical Study of Chinese Securities False Statement Civil Compensation Cases

Abstract

As the significance of private litigation in securities enforcement has become widely recognised, private litigation now serves as an imperative supplement to administrative and criminal sanctions for investor protection in different countries. Chinese securities litigation, featuring heavy dependence on public enforcement, has been criticised for the protection of local listed companies in these lawsuits. This study empirically verifies the issue of local protectionism in China’s securities litigation. The theory that local governments’ fiscal reliance on listed companies motivates courts’ protectionism is evidenced in this study. Local protectionism in China’s securities litigation is found to be severe in the least-developed areas, but economic underdevelopment is only a sufficient condition for local protection. Case studies suggest that personal rent seeking and corruption contribute to local protectionism in China’s securities litigation. The discussion also extends to the examination of the “piggy-back” effect of public enforcement, state ownership and other extra-judicial factors in China’s securities litigation.