Can Delisting Regulation Reform Improve Pricing Efficiency? A Perspective Based on Shell Companies
ZHANG Jinsen, ZHANG Kuo, QU Yuanyu
Antai College of Economics and Management, Shanghai Jiao Tong University; China School of Banking and Finance, University of International Business and Economics
Summary:
Excessive speculative trading of shell companies by investors has led to inflated stock prices, distorting market pricing mechanisms and weakening the effectiveness of capital market resource allocation. The 2020 delisting reform represented a transformative shift from “soft constraints” to “hard constraints” through optimizing delisting indicators, diversifying exit channels, and simplifying procedures. Within three years of implementation, the number of forced delistings has nearly tripled compared to the previous decade. As the reform deepens, whether strengthened delisting supervision can effectively reduce the market value of shell resources, improve the quality of listed companies, and purify the capital market ecosystem has become a critical concern for scholars, practitioners, and regulators. Using the 2020 delisting reform as a policy setting and focusing on shell resources, this paper addresses the following core questions. Can the new delisting rules improve the pricing efficiency of shell companies？ Do different delisting channels have distinct effects？ What are the underlying mechanisms？ Drawing on data from A-share listed companies from 2016 to 2023, this paper measures valuation bias by calculating the ratio of intrinsic to market value per share and estimates shell value intensity as a proxy for shell companies by computing both shell value and the predicted probability of backdoor listing. We employ a generalized difference-in-differences (DID) model to examine the impact of delisting reform on pricing efficiency. Results show that the degree of value deviation among shell companies has significantly decreased following the implementation of the new delisting rules in 2020. This conclusion continues to hold across a series of robustness tests. Further heterogeneity analysis demonstrates that the effects of the new delisting rules are more pronounced for shell companies with lower stock prices, lower net profits, those that have received qualified audit opinions, and those with a history of financial fraud violations. Mechanism analysis reveals that the implementation of the new delisting regulations has significantly enhanced corporate operational efficiency and effectively mitigated speculative behavior in the market. Regarding operational quality, the delisting reform effectively curbs manipulation of non-recurring gains, discourages financialization, boosts real investment intensity, and raises total factor productivity. On the market speculation side, we detect a marked decline in investor attention, backdoor listing speculation, and trading volume regarding shell companies, thereby squeezing the irrational premium embedded in shell prices. This paper's contributions are threefold. First, while prior literature on China's capital market reforms has largely concentrated on “entry-side” innovations such as the IPO registration system, we shift the lens to the “exit-side” and provide a systematic evaluation of how a rule-based delisting reform reshapes shell resource pricing. By completing the entrance-to-exit analytical loop, we offer a more holistic view of institutional sequencing in emerging markets. Second, we extend the burgeoning literature on shell value formation and “regulatory premium” by demonstrating that stringent delisting supervision is an effective channel through which such premiums can be dissipated. Our evidence suggests that the so-called “control-license value” of a listing is not an immutable market feature but a policy-contingent asset whose worth declines when forced exit becomes credible. Third, we illuminate the governance function of shifting from soft to hard constraints. By squeezing arbitrage opportunities and refining risk pricing via diversified exit routes, the reform redirects capital toward high-quality firms and enhances market resilience. Policy implications flow naturally from our results. First, strict implementation of the delisting system is essential. A standardized, timetable-driven workflow, coupled with real-time information sharing among the exchange, the CSRC, and other enforcement bodies, will sustain the credibility of hard constraints. Second, manipulation behaviors by marginal enterprises must be suppressed. A joint audit regime that pairs regulators with external auditors, backed by a stringent accountability framework and severe penalties for negligence, can mitigate last-minute cosmetic earnings management by borderline firms. Finally, investor education and risk awareness cultivation should be strengthened. Disseminating plain-language guides to delisting rules, embedding pop-up risk alerts into trading platforms, and employing big-data analytics for personalized warnings can temper speculative sentiment and foster more rational investment decisions.
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