Can Regulating Major Shareholders’ Share Reductions Effectively Suppress Stock Price Volatility?—An Empirical Study Based on the 2023 New Share Reduction Rules

Abstract

In order to regulate the reduction of holdings by major shareholders and ensure the sound operation of the capital market, the China Securities Regulatory Commission (CSRC) issued the document Further Regulation of Share Reduction Behavior by the CSRC on August 27, 2023. This paper focuses on this new reduction regulation and employs a fixed-effects model to empirically examine its impact on stock price volatility in the overall A-share market, as well as in the Shanghai and Shenzhen stock exchanges, during the period from January 4, 2023, to December 31, 2024. The empirical results show that: (1) The new reduction regulation has a mitigating effect on stock price volatility in both the overall market and the Shanghai and Shenzhen stock exchanges. (2) The inhibitory effect of the new reduction regulation on stock price volatility is more pronounced in companies with higher ownership concentration.