China Securities Regulatory Commission Research Articles

An automated quantitative investment model of stock selection and market timing based on industry information

As a growth asset, many listed companies have distinct characteristics of their respective industries. The listed companies in the same industry have a link effect, which can provide a wealth of information for stock operations. In this paper, a complete automated quantitative investment model is developed based on statistical models that use industry information to select stocks and time the market, thereby bringing out the synergistic effect of the system and ensuring maximum returns on investment. Risk control is taken into consideration in our model, a risk control factor is designed by measuring volatility of stock prices to determine the buying volume and the timing of stop loss, effectively safeguarding capital security. The latest industry classification results published by the China Securities Regulatory Commission are used as the basis for the industry classification. After data preprocessing, there are 70 sub-categories in 18 major categories of industry. We take the stock price of the 70 sub-categories from January 1, 2012 to January 1, 2022 as our research data. The back testing results show that positive returns are obtained in all industries except for six in our model. The average annualized rate of return is 11.10 %, which is higher than the stock indexes of the same period and far higher than the investment model of bank savings. Additionally, in accordance with a real trading system, the experiment simulates the inclusion of all transaction fees in the trading process, demonstrating the practical application value of our expert system.

Systematic Risk Analysis of Listed Financial Institutions from the Perspective of Complex Network

Based on the complex network theory, this paper studies the systemic financial risks in China’s financial market. According to the industry classification of the China Securities Regulatory Commission in 2012, the daily closing prices of 45 listed financial institutions are collected and the daily return rates of each financial institution are measured according to the logarithmic return rate calculation formula. In this paper, the risk spillover value ΔCoVaR is used to measure the contribution degree of each financial institution to systemic risk. Finally, the relationship between the risk spillover value ΔCoVaR and the node topology index of the risk transmission network is investigated by using a regression model, and some policy suggestions are put forward based on the regression results.

A stock price manipulation detecting model with ensemble learning

Stock price manipulation has a serious negative impact on the normal market trading environment and order, and among them, trade-based manipulation is particularly common and hidden, which makes it difficult to be detected by regulatory agencies. A variety of algorithms have been applied onto solving this problem, among which RNN-based models perform well due to their adeptness at processing time-series data. Several works have been conducted to integrate RNNs into ensemble models by treating RNNs as traditional classifiers, but the training process and the sub-model connection of traditional ensemble models could drop potentially informative features learned by RNNs. In this paper, we propose a model utilizing the stacking generalization technique that combines predictions of multiple submodules to give the final result while keeping the structure of neural networks. To validate the performance of our model, we collected public data from China Securities Regulatory Commission and created a dataset based on these data. The results show that our model performs better than the baseline in multiple metrics.

The Impact of Independent Directorship on Business Performance in China: Empirical Study on SSE Listed Firms

In an effort to enhance the influence of independent directors within the framework of corporate governance, the China Securities Regulatory Commission (CSRC) has recently introduced revised regulations pertaining to independent directorship in August 2023. This regulatory adjustment signifies a pivotal step towards bolstering Chinese-specific corporate governance. This research endeavors to delve into the potential impact of independent directorship on business performance within mainland China's corporate landscape. This study harnesses data from publicly traded companies on the Shanghai Stock Exchange (SSE) in conjunction with panel data analysis and Ordinary Least Squares (OLS) regression to build empirical models. It is noteworthy that the initial results indicate a favorable connection between independent directorship and business performance. It has been demonstrated that having more independent directors is connected with better corporate profitability. Against the backdrop of the newly implemented regulatory reforms concerning independent directors, this study is poised to make a substantive contribution to the ongoing discourse on corporate governance and its ramifications for business performance in China. As these revised regulations usher in a renewed emphasis on independent directorship, this research's insights hold significant relevance for both practitioners and policymakers navigating the evolving corporate governance landscape.

The Differences of Registration Systems in Chinese and the U.S. and Implications

As a matter of fact, registration systems are crucial for stock markets and financing of companies, which is different in different countries and regimes. In November 2013, the purpose of China securities regulatory commission is to strength the status of market as the role of resource allocation. With the continuous development the issuance, trading system of listed companies’ reforms registration system, which promotes the efficiency of market operation and information disclosure level. With this in mind, this paper tracks the history of registration system in the United States, analyses the risk in the progress of market registration. Due to significant different political and cultural system, this paper also discusses the differences between the registration systems of China and the United States, the reasons for the differences and the enlightenment to the development of the registration system in China. Overall, these results shed light on guiding further exploration of registration system development.

Motivation and Performance of the Spin-off Listing of Shengyi Technology

China Securities Regulatory Commission issued Several Provisions on the Pilot Project of domestic listing of the spin-off subsidiaries of listed companies in December, 2019, which was an important milestone for capital market in China. Before this provision was released, domestic listed companies who planned to conduct equity carve-out had to go list on Foreign Exchange. Since Shengyi Technology was the first listed parent company conducting equity carve-out after the announcement, citing the spin-off listing of Shengyi Technology as an example may enrich the research on the equity carve-out in China and provide suggestions for companies with similar plans. This paper adopts case study method, briefly summarizing the results of the current liteture and then analyzing the motivation and financial performance of Shengyi Technology. Then, this study draws a conclusion, finding policy support, coping with copetition, raising money and focusing on core business were the key motivations, and that equity carve-out had a positive impact on the performance of Shengyi Technology in the short term.

CSRC’s random inspection and capital market information efficiency: an empirical evidence from stock price synchronicity

ABSTRACT The random inspection of the China Securities Regulatory Commission (CSRC) is an important policy for practicing “standardizing regulatory behavior and innovating management modes”. This study investigates how CSRC’s random affect capital market information efficiency from the perspective of stock price synchronicity. Using a sample of China’s non-financial A-share firms from 2013 to 2019, we find that random inspections significantly reduced the stock price synchronicity of inspected firms. Random inspections could increase the probability of releasing management earnings forecasts, media coverage and investor attention, and thereby improve information efficiency. Further study finds that the effect of random inspections on stock price synchronicity is stronger for non-state controlled firms, districts with more listed firms, and districts with more transparent government. This study enriches the literature on the consequences of random inspections and extends our knowledge of the relationship between regulatory innovations and the information efficiency of the capital market.

An Analysis on Multiple Rounds of Questioning Under the Registration System: Taking Hitake as an Example

The traditional approval system has in the past suffered from low approval efficiency and inadequate information disclosure, and was prone to market speculation and information asymmetry. In order to improve market transparency and standardization, the China Securities Regulatory Commission (CSRC) formally implemented a registration system for stock issuance in 2019 and is gradually promoting related reforms. Under the registration system, if the regulator still has questions about a company’s response or needs further information, it may ask additional questions and request more information and explanations from the company. At this point, the company will face multiple rounds of questioning. Through the multiple rounds of questioning procedures, the regulator can gain an in-depth understanding of the situation of the proposed listed company, ask questions and request additional information, so as to better protect the rights and interests of investors and the stable operation of the market. This paper analyzes Hitake as an example of a company, and studies the reasons why Hitake experienced multiple rounds of questioning as well as the economic results of multiple rounds of questioning from both financial and nonfinancial perspectives. The significance of this paper is that by analyzing the multiple rounds of inquiries under the registration system of Hitake, it reflects the impact of the multiple rounds of inquiries, thus reflecting the far-reaching role of the registration system in today’s market as well as the revelation.

The nonlinear relationship between employee stock ownership plans and firm performance: Evidence from China

Two opposing forces (positive and negative) have been theoretically expounded to explain the relationship between employee stock ownership plans (ESOPs) and firm performance. However, the direction of this relationship remains a puzzle, especially in countries where state ownership is significant. This paper draws on the “Guidance on the pilot implementation of employee stock ownership plan (ESOP) by listed companies” issued by the China Securities Regulatory Commission (CSRC) to assess the moderating effect of state ownership on the relationship between ESOPs and firm performance. Using employee and executive stock ownership data from 620 Chinese listed companies between 2014 and 2020, I find an inverted U-shaped relationship between employee stock ownership and firm performance. However, the inverted U-shaped relationship holds only for non-state-owned Chinese firms. Finally, a U-shaped relationship between executive ownership and company performance has been found.

Research on the Prevention and Response of Goodwill Impairment Auditing Risk Based on the Audit Case of Zeus Entertainment

 The impact of goodwill on financial statements has attracted attention from all walks of life. The huge impairment of goodwill in A-shares at the end of 2018 made goodwill once again the focus of discussion and research. The uncertainty of accounting estimates for the subsequent measurement of goodwill and the complexity of the impairment testing process have long brought greater difficulties to financial accounting and CPA auditing. This article selects the audit reports of A-share listed companies as a sample, and analyzes the main audit response measures for goodwill impairment matters listed in the key audit matters to understand the status of goodwill impairment audits by CPAs. Based on the statistical analysis results and the summary of relevant administrative regulatory measures of the China Securities Regulatory Commission, the main risk points of the current goodwill impairment audit inspection risks were summarized according to the audit business stages. Thirdly, this article selects representative audit cases of listed companies in the media industry for case analysis. After comprehensively elaborating on the goodwill formation and subsequent measurement process of the case company, this article conducts an in-depth analysis of the main audit measures taken by certified public accountants on the company's goodwill impairment matters, and analyzes the project's goodwill impairment based on the goodwill impairment audit risk model. Value audit risks are analyzed and problems that may lead to inspection risks are summarized. The conclusions drawn based on statistical analysis and literature review were verified, and the causes of the problems were analyzed based on the case background. Finally, this article puts forward countermeasures and suggestions for preventing and responding to goodwill impairment audit risks from both short-term and long-term aspects.

Do disclosure of ESG information policies inhibit the value of heavily polluting Enterprises?—Evidence from China

Green governance and high-quality green development are crucial to the growth of enterprises; therefore, this paper examines how environmental, social, and corporate governance (ESG) disclosure policies affect the value of heavily polluting companies. The study's data is from the new version of the Governance Guidelines for Public Companies promulgated by the China Securities Regulatory Commission in 2018. Thus, the data of China's public companies from 2011 to 2021 is used for the study's analysis. The methods applied for our estimation analysis are the differences-in-differences (DID) and the mediation effect model. The findings depict that ESG information disclosure policies can significantly inhibit the corporate value of heavily polluting enterprises (HPE). Enterprise technological innovation plays a mediating effect in this mechanism; that is, after introducing the policy, it effectively alleviates the information asymmetry and promotes enterprise technological innovation, but it also damages the enterprise value. Further analysis shows that the inhibition effect of ESG information disclosure policy on the value of HPE is heterogeneous, and for non-state-owned enterprises, ESG information disclosure policies have a stronger inhibitory effect. Also, there is little difference between the central and western regions and the eastern region in terms of the inhibitory effect of ESG disclosure policies on the value of HPE. The conclusion of this paper is conducive to improving the information disclosure policy of listed companies and promoting the green development of enterprises.

Effectivenes of incentive constraint policies in enhancing green bond credit rating and certification: A theoretical and empirical study

This paper aims to effectively reduce CO2 emissions by examining the impact of three distinct incentive and constraint policies on the quality of rating and certification information in China’s green bond issuance market. To accomplish this, the government has implemented incentives, while regulators have introduced constraints to curb the spread of inflated rating and certification information. We build on the integrated rating and certification regulation mechanism by presenting a two-stage Stackelberg game model that involves four key participants: the China Securities Regulatory Commission, local governments, green evaluation and certification agencies, and credit rating agencies. We incorporate environmental effects indicators into the expected utility of rating and certification agencies to investigate the equilibrium conditions under three policy scenarios: a single financial incentive policy, a single regulatory constraint policy, and a combined incentive and constraint policy. The paper employs Stackelberg game theory to analyze how different policies mitigate the occurrence of “inflated” ratings and “greenwashing” in certifications. Numerical analysis is conducted to validate the theoretical findings. Moreover, we assess the impact of these policies on the quality of rating and evaluation information, using data from China’s green bond issuance market between 2016 and 2021. Our research offers valuable management insights and regulatory recommendations for both regulators and local governments.

Three Operational Modes of Back-door Listing in China

Backdoor listing refers to a transaction in which an acquiring company purchases a listed company and changes its main business. This paper provides a comparative analysis of the three operation modes for backdoor listing in China: reverse acquisition, agreement acquisition, and three-party cooperative acquisition. It discusses the advantages, disadvantages, transaction structure and compliance with the backdoor listing criteria defined by the China Securities Regulatory Commission (CSRC). The acquirer should consider the risks and benefits of each mode based on relevant legal provisions and regulations. Regulatory authorities, on the other hand, should use these provisions and regulations as screening tools to identify transactions that may pose serious risks to the capital market.

A Preliminary Analysis of the Role of Intermediary Institutions in Capital Markets

On February 17, 2023, a substantial paradigm shift was ushered into the Chinese capital market as the China Securities Regulatory Commission declared a sweeping reform of the registration system. Under this fresh framework, the success of a company's listing and refinancing endeavors hinges not solely on its own operational vitality but also heavily relies on the expert services extended by a multitude of intermediary institutions. These include securities firms, legal counsel, accounting professionals, and appraisers. This research aims to penetrate the workings of these intermediary bodies, to gain a profound understanding of their pivotal role in the listing and refinancing processes of firms, and their instrumental position in fostering sustained growth and fortification of companies within the capital market. Our investigation endeavors to furnish both practitioners and scholars with a fresh perspective on the function of intermediary institutions amidst the backdrop of capital market transformations. The goal is to spur more effective and transparent market operations.

Enhanced management information disclosure responsibilities and corporate risk-taking: Evidence from the accountability system for errors in China

Enhancing management's responsibility for information disclosure can improve a firm's risk-taking by improving its resource allocation efficiency, but it can also reduce firm risk-taking by increasing managers' risk aversion. After the regulation change from the China Securities Regulatory Commission to require the listed companies to establish an accountability system for material errors in information disclosure of annual reports (hereinafter referred to as the “accountability system for errors”) in late 2009, the risk of misreporting became substantially higher. This paper explores how the accountability system for errors with strengthened management's responsibility for information disclosure affects corporate risk-taking. We find that the accountability system for errors significantly reduces corporate risk-taking, especially idiosyncratic risk, and the impact is greater in firms with short-term CEO tenure and high-tech firms. The improved information environment and increased market pressure are the mechanisms by which the accountability system for errors reduces corporate risk-taking. Further research shows that after the policy change, firms reduce R&D expenditures and output and are more likely to diversify risk through fixed asset investment and diversified mergers and acquisitions. After establishing the accountability system for errors, the higher level of risk-taking will lead to lower CEO compensation and a higher probability of CEO dismissal. This paper enriches the research on corporate governance reform related to strengthening management responsibility. Our research also provides references and guidance for relevant regulatory authorities and listed companies in emerging markets to improve their corporate governance.

Preventive regulation and corporate financialization: Evidence from China Securities Regulatory Commission's random inspections

This study takes CSRC's (China Securities Regulatory Commission) random inspection as a quasi-natural experiment, employs a sample of Chinese A-share listed firms from 2007 to 2021, and tests the impact of a preventive regulation on firms' financialization using a difference-in-differences model (DID). We found that CSRC's random inspection significantly reduces the financialization of entity enterprises, especially over financialization. The mechanism test shows that random inspection can reduce the firms' financialization through two paths: the resource effect, which alleviate financing constraints, and the governance effect, which restrain agency costs and earnings management. Further analysis shows that the mitigating role of the CSRC's random inspection is especially prominent for enterprises faced with more efficient securities regulation, more serious media pressure or executives lack of financial background. Moreover, the CSRC's random inspection have a regional spillover effect. In the economic consequences test, we found that firms' financialization reduces long-term value-creating activities such as R&D investment, innovation output and main business performance, while CSRC's random inspection mitigate such adverse effects. These findings enrich not only the research related to financialization in emerging economies, but also provide meaningful implications for the current securities regulatory system reform in China and other countries in which have implemented or are going to implement the preventive regulatory.

Randomized inspection and firm's government subsidies: A natural experiment in China

This paper investigates the causal effects of the China Securities Regulatory Commission (CSRC)’s inspection on firm's government subsidies using a randomized inspection policy in the context of China. Our difference-in-differences estimation shows that inspections of regulators significantly reduce firm's subsidies by around [10.24%, 26.03%]. Plausible mechanisms are the reduction of government-firm connection, information asymmetry, and rent-seeking. Our findings are more pronounced among firms with poor corporate governance, fewer policy burdens, and higher financial risks. We also find a significant industrial and regional spillover effect and a promotion in firm performance. Overall, this paper evaluates the effects of external regulation on government subsidies and emphasizes the importance of supervision in correcting the helping hand of local governments, thus providing timely implications for policymakers.

Analysis of Financial Fraud Cases of Le.com

Le.com (formerly LeTV), as the first online video company listed in A shares in China, which plays a role as a weather vane for the online video industry, was reported to had committed financial fraud for up to ten years from 2007 to 2016, mainly by fabricating business with related companies and third-party companies to construct a false capital cycle. On May 2, 2021, the China Securities Regulatory Commission (CSRC) issued a penalty decision. By introducing the background of Le.com and its main fraud methods, based on the three major reasons of case analysis and fraud triangle theory, this paper focuses on the problems of its ownership concentration and imperfect audit system, and analyzes the specific motivation analysis of Le.com financial fraud.

Going public and innovation: Evidence from the ChiNext stock market

Innovation can drive corporate value and enhance competitiveness. Due to the high risks, long-term nature, and exclusivity of innovative projects, it is difficult for companies to meet R&D (Research & Development) investment needs through internal funding. An IPO (Initial Public Offering) represents the first major liquidity event in a firm’s lifecycle since founders and initial investors realize value from the sale of their equity stakes and consequent diversification of ownership. Firms raise funds from investors in the capital market through initial public offerings (IPOs), which serve as an essential means of corporate financing. Based on this, this paper investigates the effects of going public on innovation using the Difference-in-Differences approach. The treatment group comprises public firms on the ChiNext stock market between 2010 and 2016. As a control group, non-listed firms submitted IPO applications to the China Securities Regulatory Commission (CSRC) but failed during the same period. Consequently, the final data is collected from 2007 to 2019, encompassing the three years pre and post-IPO periods. We find going public can prompt corporate innovation, and this positive effect is achieved through three channels: alleviating financing constraints, accumulating human capital, and mitigating agency problems. Heterogeneity analysis reveals that the positive relation is more pronounced in non-high-tech firms, higher competitive industries, weaker intellectual property protection firms and the growth-stage firms. Taking into account the characteristics of IPO, we find that the promotion of corporate innovation is more pronounced in samples with pre-IPO venture capital or private equity investments and lower levels of underpricing during IPO. Additionally, the increased innovation induced by IPO positively impacts long-term value and total factor productivity. The analysis reveals a complex trade-off between public and private ownership. It enriches the research on the impact of IPO behavior on innovation and provides new empirical evidence to improve the multi-level capital market.

The Impact of Auditor Liability System on Audit Quality

The complexity of business operations and the likelihood that accounting information may be distorted are both rising along with the market economy's quick expansion, which raises the stakes for auditing work. In the process of independent auditing, the purpose of the auditor responsibility system is to control the auditor's numerous audit relationships. To a certain extent, this system can prevent audit risk and lower the likelihood of audit failure, improving audit quality. This paper examines the issues and causes of certified public accountants' audit failure in the auditing process, examines the current issues with the auditor responsibility system, and makes recommendations for enhancing audit quality in light of the administrative penalty decision made by the China Securities Regulatory Commission (CSRC) on ShineWing China Accounting Firm and the two signatory certified public accountants in 2022. suggestions for raising the quality of the audit.