EconPapers    
Economics at your fingertips  
 

Strategic interaction between institutional investors and supervision department: a theoretical analysis of low-price collusion in SBIC

Xin Li () and Zhuming Chen ()
Additional contact information
Xin Li: Sichuan University
Zhuming Chen: Sun Yat-sen University

Financial Innovation, 2023, vol. 9, issue 1, 1-36

Abstract: Abstract We introduce evolutionary game method to analyze low-price collusion in inquiry market of Sci-Tech Innovation Board of China (SIBC) from the perspective of strategic interaction between large institutional investors (LIIs), small and medium-sized institutional investors (SMIIs), and supervision department (SD). The results show that supervision behaviors of SD, and quotation behaviors of institutional investors, are subject to supervision conditions. Under the condition that benefits of tough supervision are lower a lot than minimum benefits of light supervision (light supervision condition), SD will choose light supervision and institutional investors will turn to illegal quotation in response. Finally, a steady-state equilibrium with low-price collusion will form in SIBC’s inquiry market even with a large supervision penalty for illegal quotation. On the contrary, under the condition that benefits of tough supervision are higher a lot than maximum benefits of light supervision (tough supervision condition) and with a large penalty for illegal quotation, SD and institutional investors will choose tough supervision and legal quotation. Further numerical simulations under light supervision condition show that: (1) High-price culling rule will become a booster for low-price collusion and accelerate SMIIs’ evolutionary process to imitative quotation. (2) Blindly increasing penalties for illegal quotation or reducing the culling rate is not an appropriate approach to solve the problem of low-price collusion since it cannot shift supervision condition from light into tough and make SD supervise toughly. (3) Institutional investors’ choices of quotation strategies are more volatile and highly susceptible to supervision behaviors of SD when facing exogenous uncertainty. Therefore, the keys to solving the problem of low-price collusion are shifting supervision condition from light into tough through increasing incremental benefits of tough supervision, and providing institutional investors with a stable and predictable supervision policy. In conclusion, the creation of a fair inquiry market doesn’t only depend on restraint and punishment to institutional investors, but also requires the establishment of supervision mechanism those are compatible with market-based inquiry.

Keywords: Sci-Tech Innovation Board of China; Low-price collusion; Supervision condition; Tripartite evolutionary game (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1186/s40854-022-00413-x Abstract (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:fininn:v:9:y:2023:i:1:d:10.1186_s40854-022-00413-x

Ordering information: This journal article can be ordered from
http://www.springer. ... nomics/journal/40589

DOI: 10.1186/s40854-022-00413-x

Access Statistics for this article

Financial Innovation is currently edited by J. Leon Zhao and Zongyi

More articles in Financial Innovation from Springer, Southwestern University of Finance and Economics
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

 
Page updated 2025-03-20
Handle: RePEc:spr:fininn:v:9:y:2023:i:1:d:10.1186_s40854-022-00413-x