Uncovering Hidden Civil Litigation Against Securities Informational Misconducts in China: Empirical Evidence from the Announcements Made by Listed Companies

Abstract:

This paper empirically studies civil litigation against securities informational misconduct in China. By applying a text-mining algorithm with the key words “misrepresentation” and “litigation” to various disclosure sources of public companies, we are able to collect a sample of 200 litigations initiated by harmed investors against nonfinancial listed companies for informational misconduct between 2000 and 2023. With this sample, it is found that the number of private securities litigations, together with the claimed and awarded damages, increases most significantly after the judiciary reform of litigation registration and the revision of Securities Law in 2019. With respect to the interaction between public and private enforcement, the ratio of sanctioned listed companies being sued also increases significantly. We also examine the determinants of such litigation and find that case merits, which are measured by the length of the administrative proceeding, are positively correlated with the likelihood of such litigation.