A Study on the Inhibitory Effect of Inquiry Letters on the Hollowing out of Shareholders in Non-Punitive Supervision: Taking Nanjing Xinbai Company as an Example

¹ Business School, Chengdu University of Technology, Chengdu, 610059, China
² International Business Management Department, Fujian Hwa Nan Women’s College, Fuzhou, 350108, China

^* Corresponding author: cai.jingwei@student.zy.cdut.edu.cn

Abstract

The continuous evolution of regulatory methods in the capital market underscores the significance of regulatory inquiries as a primary tool for exchanges. Over the years, the frequency of inquiry letters has risen, demonstrating a growing level of professionalism and detail in questioning. This trend has garnered considerable attention from scholars globally. Recent incidents, particularly involving listed companies facing financial crises, highlight the serious disruption caused by major shareholders hollowing out these firms. Therefore, understanding how regulatory inquiries govern the phenomenon of shareholder hollowing is crucial for enhancing market order and refining regulatory mechanisms. This study focuses on the case of Nanjing Xinbai, analyzing the hollowing-out process of its major shareholders. It investigates the governance mechanisms, inhibitory effects, and economic consequences of regulatory inquiries on such hollowing-out incidents. The case analysis reveals that inquiry letters, by posing questions, alleviate regulatory and public opinion pressure, leveraging intermediary agencies’ synergies to deter inappropriate behavior by listed companies. Simultaneously, regulatory inquiries encourage companies to enhance internal controls, safeguarding the interests of small and medium-sized shareholders in the face of potential major shareholder misconduct. The findings underscore the dual role of regulatory inquiries in releasing pressure and prompting positive corporate behavior, while also addressing shortcomings in the inquiry letter mechanism for the benefit of policymakers, investors, and listed companies.