THE IMPACT OF ADMINISTRATIVE SANCTIONS ISSUED BY THE STOCK EXCHANGE OF HONG KONG

Abstract

This study examines the impact of administrative sanctions issued by The Stock Exchange of Hong Kong (SEHK) from 1999 to 2012. While administrative sanctions are increasingly being promulgated as an enforcement mechanism in stock exchanges, doubts linger over their effectiveness since no tangible penalties are imposed on the offending party. Using hand-collected data from the SEHK’s enforcement actions, I find that sanctioned firms generally do not experience a negative abnormal return in the five days around the public announcement of the sanction. However, their board encounters a higher turnover in the years surrounding the sanction. This turnover is particularly pronounced when specific directors are reprimanded. Nonetheless, individually sanctioned directors do not experience a significant loss in outside directorships. The findings reveal that enforcement actions might have already been anticipated by the stock market. Nevertheless, these sanctions still have “teeth”, as they result in an increase in the turnover of the board of directors, who eventually bear the consequences of the reprimand. In addition, the specific characteristics of the sanction influence the extent of the penalty. Hence, the results validate the role of administrative sanctions in enforcement and inform regulatory agencies on how to refine their enforcement strategy