As a public company, joint-stock companies disclose information as the most basic form of communication with the public. The formation of stock price is based on real information. If the information disclosure of a joint-stock company is false and deliberately exaggerates the company's performance or operating conditions, it will cause investors to invest blindly and the stock price will fluctuate abnormally, which will not truly reflect the company's profitability. "South China Sea Bubble Event" is that South China Sea Company deliberately compiled false information about the company in order to make money, and painted a golden picture to investors. In fact, this picture, which bears the enthusiasm of investors for getting rich, is as illusory as a moon in the water and a flower in the mirror. In the end, it can only become a dream of Nanke because the truth of the company's operation is exposed. Many other joint-stock companies that followed the example of Nanhai Company failed to escape the disillusionment.
The second reason: the attitude of the British government is irrational.
Although the securities market itself has a certain ability to regulate the formation of stock prices, government supervision is still indispensable. The British government's attitude towards the South China Sea bubble incident is irrational, from "excessive indulgence" before the incident to "death" after the incident, from one extreme to the other.
Before the South China Sea Bubble incident, the British government indulged Nanhai Company excessively, which made Nanhai Company create a "reputation" for the future high-priced stock issuance activities, and also gave public investors the impression that Nanhai Company was the "darling" of the government. At the beginning of its establishment, Nanhai Company subscribed for government bonds as high as10,000,000 pounds, thus obtaining the British trade monopoly right on the coast of South America. At this time, the British government should foresee that an increasingly influential joint-stock company like Nanhai Company should truly announce its business information to the outside world, otherwise, once the company forms a climate and the stock issuance scale expands, the damage caused by false information to investors will be unimaginable. However, the British government did not fulfill such regulatory responsibilities, but let Nanhai Company brag about it, which kept investors' appetite. Moreover, when Nanhai Company issued shares at a premium of 300% or even 400%, the British government did not stop it in time according to the actual profitability of Nanhai Company. On the contrary, it is striking that members of Parliament and even the king rushed to buy Nanhai shares, so that when Nanhai Company's shares appeared in just ten months, they soared from 1000 to1000.
After the South China Sea bubble incident, the British government passed the "bubble bill", which, to a certain extent, curbed the recurrence of the bubble, but banned the joint-stock company, which seriously inhibited the development of the joint-stock company. The bubble law stipulates that it is illegal to form any company without legal authorization and to issue shares without authorization, and joint-stock companies generally do not have legal personality; Severely punish illegal securities transactions, thus protecting shareholders and social interests. However, the bill actually passed deliberately made it difficult to adopt the legal person form, thus going to the other extreme. The bill lasted until 1825. In a hundred years, the public turned pale at the smell of joint-stock companies and avoided stock trading. This shows the negative impact of the "bubble bill" on the development of British joint-stock companies.
The third reason: the public's extreme irrationality in stock investment.
In the longing for great wealth, the public's rational defense line completely collapsed, and was completely dragged by the news released by the joint-stock company and lost its way. When the public no longer examines the profitability of the joint-stock company, no longer distinguishes the business scope of the joint-stock company, and buys shares only for the temporary rise of the stock price, their investment behavior has evolved into a speculative behavior. No matter how high the price of the stock is, no matter whether it has deviated from the basic value of the company, as long as they believe that it will continue to rise, the public will buy it desperately. Under the control of this desire, the public can no longer talk about the basic situation of the stock market, and can no longer objectively predict the consequences of investment. Their behavior will only make the stock price higher and higher and the bubble bigger and bigger, and what awaits them can only be the bursting of the irrational bubble.