Shares in Guangshen Railway Co dropped 10.5 per cent yesterday after its chairman and a director were removed from positions for breaching regulations.
Analysts said the move underscored Beijing's determination to clamp down on stock market speculation.
Guangshen fell 37.5 cents to $3.20 yesterday, following a trading suspension on Tuesday prior to the announcement of the management reshuffle.
The chairman, Ge Wenan, and director and chief accountant Zeng Xianzhao had to step down because, without approval from the board of directors, they transferred 300 million yuan (about HK$278.4 million) of the company's listing proceeds to a stock brokerage for a short-term entrusted investment.
The company has said it did not know where the money was invested.
It is not uncommon for China's listed companies to use listing proceeds to speculate in the stock market, but Guangshen is believed to be the first case where the management has been punished. Dresdner Kleinwort Benson Securities head of China research Ann Shih said: 'The government wants to set an example to scare people from speculating in the stock markets.' In addition to the stock markets in Shenzhen and Shanghai, liquidity from China is said to be the major force driving up H shares and red chips in Hong Kong.
