Should Earnings Thresholds Be Used as Delisting Criteria in Stock Market?

Posted: 22 Nov 2005 Last revised: 26 Aug 2008

See all articles by Guohua Jiang

Guohua Jiang

Peking University - Guanghua School of Management

Hansheng Wang

Peking University - Guanghua School of Management

Abstract

In Chinese stock market, firms reporting two consecutive annual losses are subject to special treatment (ST), with further losses causing the firms' stocks to be suspended from trading or to be delisted. We argue that these earnings-based delisting requirements are misconstrued. Such policies drive financially healthy firms out of stock market, and induce listed firms to engage in rampant earnings manipulation in order to avoid delisting. The results carry important public policy implications for securities market regulation.

Keywords: Law and Finance, Special Treatment, Market Development

JEL Classification: G18, K22

Suggested Citation

Jiang, Guohua and Wang, Hansheng, Should Earnings Thresholds Be Used as Delisting Criteria in Stock Market?. Available at SSRN: https://ssrn.com/abstract=853486 or http://dx.doi.org/10.2139/ssrn.853486

Guohua Jiang (Contact Author)

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China
+8610 62757930 (Phone)
+8610 62751470 (Fax)

Hansheng Wang

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

HOME PAGE: http://hansheng.gsm.pku.edu.cn

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