Front-line Regulation of Stock Exchanges and Top Management Turnover: Evidence Based on Inquiry Letters

Abstract

Abstract:

Inquiry letter is an important front-line regulation tool of the stock exchange. This paper studies the economic consequences of inquiry letters from the perspective of corporate governance, and we find that inquiry letters are significantly positively correlated with the turnover of top management. Further analysis shows that the inquiry letters of financial reports are also significantly positively correlated with the turnover of top management:the more inquiry letters aiming at financial reports and the more questions asked about the same financial report, the higher turnover of top management. More detailed research finds that when the financial inquiry letter needs intermediary institutions to verify, involves related transactions, involves mergers and acquisitions, acknowledges mistakes, delays the reply or the more days between receiving date and replying date, then top management turnover rate become higher. Through cross-sectional analysis, this paper also finds that the positive relationship between inquiry letters and top management turnover mainly exists in enterprises with high marketization degree and good corporate governance. Finally, inquiry letters significantly increase the turnover of secretary of the board and CFO. The results provide important evidence for the effectiveness of exchange inquiry letter regulation and the series of policies proposed by the CPC Central Committee Political Bureau in 2019 to "improve the quality of listed companies".

Key words: stock exchanges, front-line regulation, inquiry letter, top management turnover

Deng Yilu, Li Zhe, Chen Yunsen. Front-line Regulation of Stock Exchanges and Top Management Turnover: Evidence Based on Inquiry Letters[J]. , 2020, 32(4): 194-205.

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