The 304th Wenlan Financial Forum

Abstract：

Share prices are an important carrier for the capital market to serve the real economy, performing the functions of resource allocation and information transmission. This paper utilizes data from inquiry letters related to mergers and acquisitions issued by the Shanghai and Shenzhen Stock Exchanges from 2015 to 2022 to investigate whether share prices can serve as a signaling mechanism to influence regulatory decisions. The study found that abnormal share price reactions to mergers and acquisitions events can trigger regulatory inquiries, and the greater the share price reaction, the greater the intensity of the inquiries, manifesting in an increased number of inquiry letters, longer texts, and more numerous and complex questions. This conclusion remains valid after addressing endogenous issues using sample matching and instrumental variables. At the same time, when a company's information environment is worse, regulators are more likely to pay attention to the impact of share price changes on investors' interests, indicating that regulatory departments and market investors perform complementary oversight functions. The mechanism analysis shows that different share price reactions lead to significant differences in regulatory objectives and content. For positive share price reactions, regulators mainly aim to prevent investors from being overly optimistic, thus protecting the future interests of new investors. For negative share price reactions, regulators primarily "advise against" mergers and acquisitions that investors do not approve of, protecting the interests of existing shareholders. Finally, this paper finds that regulation triggered by negative market reactions can "persuade" companies to abandon mergers and acquisitions, promoting improvements in their business performance. This paper provides empirical evidence for the first time that share prices can serve as a signaling mechanism to influence regulatory decisions and improve regulatory efficiency, enriching the traditional "feedback effect" theory and the literature on factors influencing inquiry letters. It also offers a new perspective for regulators to improve regulatory efficiency and establish a sound regulatory interaction between the government and the market.

Speaker Introduction：

Kang Chen is an associate professor at the China Financial Research Institute of Southwestern University of Finance and Economics, and holds a Ph.D. in Finance from the Guanghua School of Management, Peking University. He is also the executive vice president of Sichuan Innovation Technology Finance Research Institute. His main research areas include capital markets and corporate financial management, technology finance, and regional financial development. He has published papers in various journals such as Economic Research, Management World, Journal of Financial Research, Management Science, and International Review of Financial Analysis. He has led research projects funded by the Sichuan Provincial Philosophy and Social Science Planning Project and the Soft Science Research Project of the Sichuan Provincial Science and Technology Department, and has participated in the National Natural Science Foundation of China.