After the Chinese stock market dropped one-third in three weeks in June 2015, reportedly driven by lack of liquidity due to the fire sales by margin buyers, the government used hundreds of billions of dollars to purchase shares directly in the secondary market. We validate that margin trading is associated with the surge of stock market before the crisis. We find that firms in systemically important industries, firms with more political ties, and firms with high risk of falling into liquidity spiral are more likely to be rescued. More importantly, compared with matched un-rescued firms, rescued firms did not have higher stock return, but experienced higher volatility, lower liquidity, and lower price efficiency afterwards. Market quality even deteriorated further after the subsequent sale of the purchased shares. Last, rescued firms experience a modest decline in operational performance, while capital structure and investment remained the same. Our evidence suggest that a direct purchase rescue in the secondary stock market could generate serious unintended consequences.
Chunbo Liu ;
Yongxin Xu ;
Xiaoyan Zhang ;
The Unintended Consequences of Direct Purchase Stock Market Rescue: Lessons from China （2022年04月26日）http://www.cfrn.com.cn//lw/zbsc/scwgjglw/280ace64efba4beb97eb32e68809264f.htm