Can a regulatory minority institutional shareholder raise the informational efficiency of stock prices?

Abstract

In this study, we explore the impact of the China Securities Investor Services Center (CSISC), a regulatory minority institutional shareholder, on the informational efficiency of stock prices. Using hand-collected data of CSISC rights exercising on listed companies from 2013 to 2022, we find that the exercising of rights by CSISC significantly improves firms’ informational efficiency, especially in regions with weak legal environment, for firms without political connections or external regulatory inquiries. Channel analyses reveal that the enforcement by CSISC promotes informational efficiency through (i) the quality of internal controls, (ii) regulatory deterrent, and (iii) public attention. We further document that the difference in exercising methods and intensities contribute to the adjustment of CSISC enforcement actions. Our findings have important policy implications for enhancing minority investor protection and capital market information effectiveness.