We investigate the unintended real effects of regulator-led minority shareholder activism on corporate innovation. We use manually collected data from the China Securities Investor Services Center (CSISC), a novel regulatory investor protection institution controlled by the China Securities Regulatory Commission (CSRC) that holds 100 shares of every listed firm. We find that by exercising its shareholder rights, the CSISC substantially curtails the innovation output of targeted firms. This effect is amplified in cases involving a high level of myopic pressure and few innovation incentives. We further observe variation in the real effects of different intervention methods. Textual analysis reveals that CSISC intervention with a myopic topic and negative tone contributes to a decrease in innovation. The results of a mechanism analysis support the hypothesis that regulator-led minority shareholder activism induces managerial myopia and financial constraints, impeding corporate innovation. Furthermore, CSISC intervention not only diminishes innovation output but also undermines innovation efficiency. In summary, our findings suggest that regulator-led minority shareholder activism exacerbates managerial myopia to cater to investors and financial constraints, ultimately stifling corporate innovation.

This article aims to provide an in-depth and comprehensive analysis of PRC Securities Law 2020 which overhauls China’s securities regulatory framework to construct more efficient and transparent capital markets with enhanced investor protection and market integrity. The law constrains regulators’ administrative powers in deciding the outcome of IPOs as well as streamline the securities offering procedure. This article pays attention to key reform initiatives proposed by PRC Securities Law 2020, such as the registration-based IPO system, the enhanced investor protection and compensation regime, the cross-border supervision, and the harsher punishments for securities frauds. It also discusses the latest enforcement cases relating to high-profile financial frauds like the Luckin Coffee scandal which resulted in Luckin Coffee being delisted from NASDAQ in 2020. The analysis in the article is accompanied by relevant US securities law in the same area to offer a comparative angle, which is of interest to practitioners, academics and policymakers in major financial centres.

This paper documents different timeliness in disseminating sanction and enforcement information (SEI) by two types of regulatory agencies in China and the different consequences that flow from them. The China Securities Regulatory Commission (CSRC) does not make timely public disclosures of SEI and, instead, leave it up to the firms to make a public announcement under their general obligation to disclose price-sensitive information. The firms therefore have considerable discretion in deciding whether and when to disclose SEI. In contrast, the stock exchanges in Shenzhen and Shanghai make SEI public promptly through the media and the exchanges’ official websites. Using Chinese SEI data during the period 1999 to 2005, we find that the CSRC approach is associated with significantly lagged corporate disclosure (compared with the timely stock exchange approach) and a significantly negative (but delayed) stock price reaction. We also show that the sanctioned firm may take advantage of the less timely CSRC approach to delay its disclosure of SEI for opportunistic reasons such as completing material transactions. We conclude that the CSRC should make immediate public announcements of SEI as these contain price-sensitive information. Furthermore, the immediate dissemination of SEI will bring the CSRC into line with the disclosure practices of China’s stock exchanges and international market regulators.