Relationship Networks and Earnings Informativeness: Evidence from Corruption Cases

The measurement difficulties arising from relationship‐based business transactions can result in accounting opacity. We test this hypothesis by exploiting a natural experiment. Using a sample of firms that were networked with 45 high‐level Chinese bureaucrats involved in corruption scandals between 1996 and 2007, we examine the patterns in the earnings informativeness of these firms before and after the exogenous break of the networks. We predict that the costs and benefits of business‐politics relationships, which are not measurable by the current accounting systems, diminish the ability of accounting earnings to track a firm's economic performance. In turn, a break in a political relationship due to anti‐corruption enforcement reduces the measurement noise and improves the earnings informativeness. We find that, relative to the matched control firms, there is indeed a significant increase in the earnings informativeness of the networked firms following the public exposure of a scandal. Robustness tests fail to show that the documented improvement in the earnings informativeness is primarily due to systematic changes in the firms’ earnings management behavior or disclosure policies.     

Financial openness and profitability premium: Causal evidence from the Shanghai-Hong Kong Stock Connect

This study explores the impact of capital market openness on the profitability premium by using the Shanghai-Hong Kong Stock Connect (SHKSC) programme as an exogenous shock. The empirical results show that (1) we can basically rule out the mispricing mechanism driving the significant profitability premium in China; (2) following SHKSC, the expected stock returns increase more across less profitable firms, and the less profitable firms have more increases in illiquidity, capital structure and information disclosure quality; and (3) the results are still robust after using propensity score matching analysis, deleting the highly volatile periods and conducting a firm-level test with the triple-differencing design.     

Short-sale constraints and stock price crash risk: Causal evidence from a natural experiment

We examine the relation between short-sale constraints and stock price crash risk. To establish causality, we take advantage of a regulatory change from the Securities and Exchange Commission (SEC)’s Regulation SHO pilot program, which temporarily lifted short-sale constraints for randomly designated stocks. Using Regulation SHO as a natural experiment setting in which to apply a difference-in-differences research design, we find that the lifting of short-sale constraints leads to a significant decrease in stock price crash risk. We further investigate the possible underlying mechanisms through which short-sale constraints affect stock price crash risk. We provide evidence suggesting that lifting of short-sale constraints reduces crash risk by constraining managerial bad news hoarding and improving corporate investment efficiency. The results of our study shed new light on the cause of stock price crash risk as well as the roles that short sellers play in monitoring managerial disclosure strategies and real investment decisions.     

Endogenous productivity of demand‐induced R&D: evidence from pharmaceuticals

We examine trends in the productivity of the pharmaceutical sector over the past three decades. Motivated by Ricardo's insight that productivity and rents are endogenous to demand when inputs are scarce, we examine the industry's aggregate Research and Development (R&D) production function. Using exogenous demand shocks to instrument investments, we find that demand growth can explain a large portion of R&D growth. Returns to scale have been stable, whereas total factor productivity has declined significantly. Predicted rents based on our estimates and Ricardo's theory closely match the trends we observe.     

Networks and equity market integration: European evidence

Deregulation, globalization, and technological developments have altered the business strategies of stock exchanges around the world. We investigate whether the adoption of network strategies by stock exchanges creates additional value in the provision of trading services. Using unbalanced panel data from all major European exchanges over the period 1996-2000, we examine the consequences of network cooperation on a number of stock market performance measures. We show that adopting a network strategy is associated with higher market capitalization, lower transaction costs, higher growth, and enhanced international stock market integration.     

Political influence in hedge fund activism: Causal evidence from U.S. gubernatorial election

This study examines the causal impacts of political influence on hedge fund activism in an exogenous setting of U.S. gubernatorial election. Local incumbent politicians have incentives to protect local inefficient firms from being targeted by activists because activism could lead to divestment and local worker layoffs. And such incentives can become weaker in election years because political competition increases the incumbent politician’s accountability to broader groups of stakeholders. Consistent with this prediction, the likelihood of local firms being targeted by activists is shown to be significantly higher during election years. Moreover, the firm’s political connections mitigate the effects of election, suggesting that politicians still maintain protection to connected firms. Further cross-sectional tests show that the effects of election are stronger (1) for firms with lower labor intensity, severer problem of free cash flow and lower efficiency, and (2) when the political competition is fiercer. Additional tests reveal that hedge fund activism enhances the target firm’s operating performance and creates larger value for investors when it faces weaker political influence. To sum up, our findings suggest that political influence affects hedge fund activism and the activists strategically adjust the timing of initiating campaigns according to the changes of such influence.     

Management,productivity, and technology choices: evidence from U.S. mining schools

A key difference between managers and other production inputs is that managers choose the other inputs. Modelling management as a Hicks-neutral productivity shifter, which is a common practice, omits the productivity returns from these input decisions. I illustrate this through a historical episode in which technology choices were important and managers plausibly influenced those choices. I study the entry of the first mining college graduates into coal mine management positions in Pennsylvania. Whereas the Hicks-neutral productivity effect of these managers was negative and not significantly different from zero, their indirect productivity effect through electrical locomotive adoption was 3% on average.     

Structural holes and hedge fund return comovement: evidence from network-connected stock hedge funds in China

Using data from a new hedge fund database, we examine the impact of social networks on the return comovement of stock hedge funds in China. We use structural holes in the college alumni networks of managers to measure the managers’ social network positions. We perform an empirical analysis on a sample of 3,012 hedge fund products in China from 2010 to 2017. We find that greater structural holes are associated with higher return comovement. The positive impact of the structural holes on return comovement is not affected by market cycles, a manager's major in college, or his or her abilities.     

私营企业主的关系网络与社会支持

基于对武汉市31位私营企业主的深度访谈,本文对私营企业主的关系网络与社会支持进行了深入的研究。研究发现:(1)私营企业主的客户群体所拥有的文化资本、权力和经济资源都远远高于其他的群体,而亲戚群体则相对比较低。(2)亲戚在情感和资金方面支持力度最大;员工在工作和业务拓展方面贡献更多;客户在业务拓展和资讯支持方面的作用都是最大的;朋友在信息和情感支持上的作用突出。(3)私营企业主的大部分关系网络是在不断交往和互动过程中建立起来的,吃饭、娱乐和聊天是他们之间互动的主要形式。(4)私营企业主最想结识的是政府官员群体,随后才是客户群体,托人打招呼、请吃饭和送礼是他们建立关系网络最有效的手段。     

Forecasting and Arbitrage of the Nikkei Stock Index Futures: An Application of Backpropagation Networks

A neural network model was used in forecasting the basis in SIMEX Nikkei Stock Index futures. Results for out of sample show that the neural network forecast performance was better than that of the ARIMA model. Also, a two-way ANOVA confirms that the employed neural network was able to provide the trader with more arbitrage profits than the traditional cost-of-carry model even though it observed relative less profitable arbitrage timing. The results can be attributed to the network';s higher ability to capture nonlinear market patterns.     

Director Networks and Credit Ratings

We explore the effect of director social capital, directors with large and influential networks, on credit ratings. Using a sample of 11,172 firm‐year observations from 1999 to 2011, we find that larger board networks are associated with higher credit ratings than both firm financial data and probabilities of default predict. Near‐investment grade firms improve their forward‐looking ratings when their board is more connected. Last, we find that larger director networks are more beneficial during recessions, and times of increased financial uncertainty. Our results are robust to controls for endogeneity. Tests confirm that causality runs from connected boards to credit ratings.     

A further inquiry into the scholarly productivity of academic accountants: Twenty years of evidence from classes of 1980-82

Scholarly productivity is a key component of faculty evaluation at many universities. In fact, under current accreditation standards promulgated by the AACSB, faculty members must remain academically qualified in research. Here we provide evidence regarding faculty research productivity. The determinants of faculty productivity are estimated with data spanning a 20 year period for 487 accounting doctoral graduates during the years of 1980-82. Sample statistics reveal that a relatively small portion of researchers produce over half of the sample's articles. Also, our regression results suggest that top-tier institutions of first hire, larger department size of initial hire, and the experience within academic ranks are all positive determinants of scholarly productivity. Conversely, research output is reduced with increased time spent teaching and accepting an initial hire at a public rather than a private institution.     

Spatial productivity spillovers from public infrastructure: Evidence from state highways

Is public-sector infrastructure a key determinant of productivity? Traditional, project-based analyses of benefits and costs typically do not find large rates of return. Proponents of infrastructure spending instead point to regressionbased analyses of the links between private productivity and public infrastructure that imply large productivity effects from public spending. The disparity in estimated returns is often attributed to geographic spillovers in productivity benefits that are not captured by disaggregated analyses. We examine the degree to which state highways provide productivity benefits beyond the narrow confines of each state's borders. Despite the fact that state highways-especially the interstate highway system-are designed at least in part with interstate linkages in mind, we find no evidence of quantitatively important productivity spillovers.     

财政支出、银行信贷与经济增长——来自2008年汶川大地震的新因果证据

学术界就财政支出与银行信贷如何影响经济增长这一问题一直未能达成共识.本文将2008年汶川大地震作为研究窗口,在财政支出和银行信贷由于震后出台的行政命令与政策外生化的研究前提下,综合使用合成控制法(SCM)、系统广义矩估计(System GMM)、回归控制法(RCM)、交叉滞后模型(Cross-lagged Panel Model)等方法,检验了地震后财政支出、银行信贷和经济增长的具体变化以及相互作用方向.研究发现:尽管汶川地震后财政支出和银行信贷显著增加,促进了经济增长,但由于震后四川省的直接经济损失较大,最终四川省在短期内GDP明显减少.这一发现明确了财政支出、银行信贷以及经济增长之间的因果关系与作用方向:首先,在中国,财政支出与经济增长之间的因果关系符合“凯恩斯假设”,即财政支出的增加“因果性地”决定了GDP的增长.其次,增加银行信贷能够“因果性地”促进GDP增长.最后,财政支出增加促进了银行信贷的扩张,而非公共投资“挤出”了私人投资.     

Uncertainty and herding behavior: evidence from cryptocurrencies

The aim of this study is to examine the existence of herding behavior in the cryptocurrency market under uncertainty by employing cross-sectional absolute deviation (CSAD) of returns, ordinary least squares (OLS), generalized autoregressive conditional heteroscedasticity (GARCH) methods and Time-Varying Markov-Switching (TV-MS) model for both overall sample and sub-periods which was determined based on the results of Quandt-Andrews and Bai-Perron breakpoint tests. We utilized the daily data of the 14 leading cryptocurrencies in terms of closing price, market cap and transaction volume. We also used dummy variables to analyze whether or not an asymmetric behavior occurred during the "up and down" market periods. Our results for the overall sample refer to an anti-herding behavior in each model. However, the results of the TV-MS model for the 3rd sub-period (2/28/2017−1/16/2018) imply the existence of a herding behavior in the low volatility regime, an anti-herding behavior occurred during the high volatility regime and the effect of uncertainty was significant on the anti-herding behavior. Finally, our results suggest that there was no significant asymmetric behavior during the "up and down" market periods.     

Investment financing: evidence from Korea

This study examines the relative importance of various forms of capital in financing investments by Korean firms. Our results from the seemingly unrelated regression (SUR) method indicate that, unlike U.S. firms, Korean firms rely substantially on cash holdings to finance investments. These results also suggest that Korean firms use long‐term debt more actively than equity issuance to finance investments. Subgroup analyses show that large firms and Chaebol‐affiliated firms use more long‐term debt but less equity issuance than comparison firms do, suggesting that debt capacity allows firms to reduce the use of equity issuance. However, there is little evidence that financing decisions are driven by information asymmetry. The results from the quantile regression (QR) method suggest that Korean firms tend to use debt capital more than they do equity capital at low and medium levels of investments, while their reliance on equity capital increases at high levels of investments.     

The undesirable effect of audit quality: Evidence from firm innovation

This study examines whether and how audit quality affects a firm's technological innovation. Using a sample of 7,482 U.S. firms between 2000 and 2009, we demonstrate that high audit quality is associated with lower innovation output, measured by patent counts and patent citations. The effect remains valid after a series of tests for endogeneity issues, alternative measures of audit quality, and different subsamples. We also find that firms with high audit quality attract more non-dedicated institutional investors and financial analysts, who often exert excessive pressure on managers for short-term performance. These pressures, in turn, exacerbate managerial myopia and lead them to forgo investments in innovation. Our findings provide new insights into audit quality by showing its undesirable, most likely unintended, consequences.     

Poverty alleviation and firm productivity: Evidence from China's minimum wage system

The reduction of income inequality is important for poverty alleviation. We manually collect the data of the local minimum wage standard of the 254 prefectural cities of 31 provinces in China. The results show that higher minimum wage attributes to the rise of firm productivity. Minimum wage hikes force the enterprises to optimize internal production, reduce redundant employees, and develop innovations. Moreover, the enterprises with higher sensitivity in labor cost, less governmental support, and stronger financial pressures are more intensive to higher minimum wage. It is robust when choosing alternative measurements, an IV strategy, and a DID analysis. It is implicated that an appropriate minimum wage system plays a positive role in achieving balance between poverty alleviation and economic growth, and the improvement in compensation can stimulate high-quality development in practice.     

Credit Risk in Interbank Networks

ABSTRACT

One of the most striking characteristics of modern financial systems is their complex interdependence, comprising a network of bilateral exposures in the interbank market, in which institutions with surplus liquidity can lend to those with a liquidity shortage. Empirical studies reveal that some interbank networks have features of scale-free networks. We explore the characteristics of financial contagion in networks whose distribution of links approaches a power law, using a model that defines banks’ balance sheets from information on network connectivity. By varying the parameters for the creation of the network, several interbank networks are built, in which the concentration of debt and credit comes from the distribution of links. The results suggest that networks that are more connected and have a high concentration of credit are more resilient to contagion than other types of networks analyzed.