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On August 12, the share prices of five listed companies, including Zhongqingbao, Renzixing, Shenyang Chemical, Tongde Chemical, and ST Dongshi, fell sharply. Wind data showed that ST Dongshi, which had the smallest drop in share price, fell 5.00% to only 1.52 yuan; Renzixing, which had the largest drop, fell as much as 19.90% in a single day, and its share price has fallen 47.95% since the beginning of the year.

The share prices of five listed companies fell collectively, all because they were investigated by the China Securities Regulatory Commission on the evening of August 9. Despite a weekend of settling down, the share prices of the relevant companies still plunged on the first trading day after the announcement.

Through interviews and research, reporters from 21st Century Business Herald found that the five companies being investigated and their stock price declines reflect two major phenomena.

On the one hand, the number of listed companies under investigation has accelerated again in August after experiencing a relative decrease in June and July. As of 17:00 on August 12, 10 listed companies have been investigated since August, which is about the total number of the previous two months.

However, in the view of industry insiders, this does not mean that the illegal and irregular behaviors of listed companies have increased. On the contrary, with the continuous advancement of strict supervision over the past few months, the current market environment has been purified. The current increase in penalties is, to a certain extent, a reflection of the refinement of supervision. As more problems are gradually cleared up, the ecological environment of the capital market will be further optimized.

On the other hand, once a listed company is investigated, its stock price often falls sharply. Especially as more listed companies meet the forced delisting indicators, the industry is worried that the companies under investigation may be forced to delist in the future.

In this regard, the interviewees suggested that we look at it rationally. Listed companies that are under investigation for core issues such as financial fraud, major violations of laws and regulations may be forced to delist later. However, the fact that a listed company is under investigation does not necessarily mean that the company has major problems, let alone involves delisting. Investors need to understand the specific reasons and progress of the investigation to avoid blindly following the trend or panic selling.

10 companies were investigated in 11 days

Strict supervision is one of the main themes of the CSRC's work in 2024. Initiating an investigation into companies suspected of violating laws and regulations is an important manifestation of strict supervision.

Wind data shows that as of 17:00 on August 12, more than 70 listed companies have been investigated this year. The number was higher from March to May, with more than 10 companies each; the number decreased to around 5 from June to July.

Since August, the number of listed companies under investigation has increased again. As of 17:00 on August 12, at least 10 listed companies were officially announced to be under investigation, including Zhongqingbao, Renzixing, Shenyang Chemical, Tongde Chemical, ST Dongshi, Fudan Fuhua, Huiyu Pharmaceutical-W, Jinfu Technology, Rihai Intelligent, and Yongjin Shares. If the companies that received the "Administrative Penalty Decision" and "Administrative Penalty Advance Notice" are included, the number of listed companies named since August has reached nearly 20. Judging from the reasons for the investigation or punishment, those suspected of violating information disclosure laws and regulations accounted for about 90%, and the above 10 listed companies were all for this reason.

Specifically, the issues involved in information disclosure violations are quite diverse. First, annual reports and performance-related information disclosure violations are the hardest hit areas. For example, the 2023 annual report was not disclosed within the statutory period, as is typical for Puli Pharmaceuticals; for example, the annual report contained false records, as was the case for ST Shengtun, ST Yalian, and ST Xiachuang; for another example, Jiayun Technology was fined for not disclosing major losses in a timely manner.

Secondly, they are suspected of short-term trading, typical examples being Yongjin Co., Ltd. and Huiyu Pharmaceutical-W.

Furthermore, some information disclosure violations that were relatively common in the past have now led to penalties for listed companies. For example, *ST Shentian failed to disclose guarantee matters and related transactions involving non-operating funds in accordance with regulations; Weiming Pharmaceutical failed to disclose related parties and non-operating related transactions in accordance with regulations, and failed to disclose important contracts and major progress in contract performance in a timely manner in accordance with regulations.

It is worth noting that there are quite a few listed companies named, but this does not mean that the number of illegal and irregular behaviors of listed companies has increased. On the contrary, under the strict supervision that has lasted for several months, the quality of information disclosure by listed companies has improved significantly. Tian Xuan, dean of the National Institute of Finance at Tsinghua University, summarized this change as: information disclosure is more standardized, the content is more rigorous, and more attention is paid to the implementation of authenticity, accuracy, and completeness requirements.

However, Tian Xuan also pointed out that with the strengthening of strict supervision, some new characteristics of illegal and irregular activities have begun to emerge, including more covert means of fraud through accounting treatment, and evading supervision by blurring the content of information disclosure in certain emerging business areas. This requires giving full play to the synergy of multi-department supervision, timely updating of supervision methods, and cautious treatment of information disclosure by listed companies.

Information disclosure violations may be the trigger

Looking at the above-mentioned listed companies that have been investigated or administratively punished, it can be found that their stock prices have all declined collectively, especially the day after being named by the regulator, when their stock prices generally plummeted.

According to Wind data, taking the five listed companies, Zhongqingbao, Renzixing, Shenyang Chemical, Tongde Chemical, and ST Dongshi, which announced on the evening of August 9 that they were under investigation, their stock prices collectively plummeted on August 12.

Among them, ST Dongshi had the smallest decline, down 5.00%, but its stock price only closed at 1.52 yuan per share, and it is already facing pressure of forced devaluation of face value; Ren Zixing and Zhongqingbao had the largest declines, shrinking by 19.90% and 16.07% respectively; the other two listed companies also fell by nearly 10%.

Judging from the decline in stock prices this year, among the 10 listed companies that have been investigated since August, except for Yongjin Co., Ltd., which fell by 7.77%, the other nine companies all fell by more than 20%; Fudan Fuhua, Ren Zixing, Rihai Intelligent, and ST Dongshi fell by more than 45%; ST Dongshi suffered the most serious decline, with a stock price drop of as much as 63.90%.

It is worth noting that information disclosure violations do not mean that the problem is serious, but the resulting investigation has caused the stock price to plummet. In the view of the interviewees, the key reason is that the investigation may lead to more serious problems being revealed.

Tian Lihui, director of the Institute of Financial Development at Nankai University, told reporters that as the investigation deepens, the probability of other problems being discovered will increase significantly. In other words, information disclosure violations can become the fuse for the exposure of problems of listed companies.

Tian Xuan said that the current regulatory authorities are more stringent in reviewing the disclosure of listed companies, including the company's main business development, asset structure, debt repayment ability, the authenticity and rationality of the company's external business activities, whether the company has major matters that need to be disclosed in a timely manner but have not been disclosed in a timely manner, whether the company's key minority has insider trading, market manipulation, etc. All phenomena that may affect the interests of small and medium-sized investors must be included in the scope of information disclosure review. This means that problems that may have been considered relatively minor in the past will also be filed for investigation, and then "follow the clues to find the cause", and if there are other problems, they will be further exposed.

The subsequent delisting may not necessarily occur

One of the reasons why the share prices of listed companies fell due to the initiation of an investigation is that investors are worried that the relevant companies will be forced to delist in the future.

According to the analysis of Tian Xuan and Tian Lihui, the fact that a listed company is under investigation does not mean that it faces pressure to be delisted, and specific issues need to be analyzed specifically.

On the one hand, when the investigation involves more serious financial fraud, covering up the fact that the company's actual operating conditions have deteriorated; maliciously providing false information to disrupt the market; maliciously concealing major changes in the company and other core illegal and irregular issues, the risk of delisting will increase significantly.

On the other hand, the fact that a listed company is under investigation only indicates that there are doubts about the information disclosure of the relevant enterprise, and it may not necessarily lead to delisting.

In view of this, Tian Lihui advises investors to remain rational when facing companies under investigation, pay attention to company announcements, understand the specific reasons and progress of the investigation, and avoid blindly following the trend or panic selling.

Tian Xuan said that starting from objective reality, we should pay close attention to the announcements of regulatory agencies and the company's subsequent announcements, and correctly assess the risks that may arise from the matters under investigation; from the perspective of investors, we should be cautious, recognize the deep-seated reasons why listed companies are under investigation, and further assess the possible short-term and long-term impact on the company's stock price and business operations, focus on the company's fundamentals and medium- and long-term development capabilities such as sustainable operations and corporate governance, and adjust investment strategies in a timely manner.