Should Earnings Thresholds Be Used as Delisting Criteria in Stock Market?
Posted: 22 Nov 2005 Last revised: 26 Aug 2008
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: Suggested Citation