From the Economist:
When China's two stock exchanges were created in 1990, the chief goal was to use private savings to restructure state-owned firms. Investors received only minority stakes and limited sway over corporate governance. Equally important, both exchanges were run by bureaucrats, so there were fewer incentives to increase their value by attracting companies and punters. There was little effective competition between them.
Over the past 18 years, China has introduced rules against market manipulation, fraud and insider dealing, but enforcement remains patchy. The China Securities Regulatory Commission seems competent but overwhelmed. Sometimes it takes years to issue penalties after lengthy investigations—and along the way cases lose relevance.
In the meantime, the exchanges have quietly begun to acquire authority. The power that they wield appears flimsy—the most serious penalty they can levy is a rebuke to firms and individuals through public notices. But it is remarkably effective in a country with a long history of punishment by humiliation—think of the cangue, a rectangular slab around the neck, in pre-Communist times and dunce caps in the Cultural Revolution.
Messrs Liebman and Milhaupt write that between 2001 and 2006 the exchanges publicly criticised 205 companies and almost 1,700 people. They looked at the share prices of the targeted firms both when they disclosed the conduct for which they were being criticised and when the criticism was published. The admissions typically preceded the rebukes, and in the few weeks that followed the firms' share prices underperformed the Shanghai stockmarket by an average of up to 6% (see left-hand chart). After the criticism, there was a further lag of up to 3% on average (see right-hand chart).
(Nod to Neanderbill)