Joanna L.Y. Ho
University of California, Irvine
Li-Chin Jennifer Ho
The University of Texas at Arlington
Phyllis Lai-Lan Mo
Hong Kong Polytechnic University
Abstract: This study addresses two issues related to the Chinese troubled firms--ST (special treatment) and PT (particular transfer) companies. First, we conduct an event study to investigate market reactions to the announcement of the listing status change for the 128 stocks downgraded over the period 1998-2001. Our results indicate that, during the early stage (1998-1999) of the implementation of the regulation, the market reacted negatively to the announcement of the downgrade. In the late stage (2000-2001), however, investors seemed to have learned that these ST/PT firms would become targets for speculation and, therefore, the announcement of the downgrade did not generate negative market reactions. Second, we examine the restructuring activities undertaken by the Chinese ST/PT firms as they respond to poor financial performance and change in listing status. We found that top management replacement and change in ownership control are two single most common actions taken by ST firms. Our results suggest that U.S. and Chinese troubled firms undertake different restructuring activities in response to financial difficulties.
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