Yixin Huang's personal site
Research Projects
Abstract: Using the random selection of inspection policy in firms' financial violations by Chinese securities regulators, I show that the market successfully predicts the upcoming enforcement actions. This predictability can be explained by the information trading triggered by the increase in probability to be detected. I conduct the event study on the day when firms know whether it has been randomly selected or not for the inspection. The cumulative abnormal return (CAR) is significantly different given the ex-post detection outcomes in selected firms. The CAR of selected firms decreases by 2.3% in response to each additional sanction letter issued in the year following the selection. Surprisingly, I find that this predictability of punishment can be explained by public information, especially in firms where institutional investors take a large stack. Meanwhile, I find that private information complements public information's predictability for hidden and difficult-to-detect violations, such as illegal stock trading. This study shows direct evidence of markets’ ability to aggregate information about financial violations into prices, suggesting that regulators can take advantage of the market for efficient detection.
Abstract: The Chinese government has proposed the Split Share Reform aiming to dismantle the dual share structure and facilities the privatization process in the future. Many studies examine the reform's effect on the firm's future performance by discussing the abnormal return at the single reform date. Conducting the event study at the firm announcement date, I examine the real market reaction after considering the market learning ability about compensation's realization. I find that the theoretical market reaction is, on average, significantly negative at the announcement date. Further exploring different factors that affect the real market reaction, I find that the reform effect in early-stage firms has been less affected by the improvements of their financial statement or the corporate governance but more likely to be affected by the compensation level. In contrast, the later-stage firms have more time to adjust and improve their behavior, and the reform effect is more pronounced in these firms with an increase in fundamental value.