Do Financial Liberalization Policies Promote Exports? Evidence from China's Panel Data

This paper empirically tests whether a country's financial reform promotes expansion of its exports measured by the constant-price total value of exports. We test the hypothesis on dynamic panel data of China. We use system GMM (generalized method of moments) estimation to deal with the potential endogeneity problem of important explanatory variables, including financial deregulation. We find that the estimated coefficient on financial deregulation in both ordinary least squares and system GMM estimation is positive and insignificant at the 5 percent level after controlling for other factors affecting export expansion and for fixed time and province effects.     

Energy-Efficiency Policies and Energy Productivity Improvements: Evidence from China’s Manufacturing Industry

To examine the effects of China’s energy saving and emissions reduction (ESER) policy implemented during the 11th Five-Year Plan (FYP) on energy efficiency of the manufacturing sector, this article evaluates and compares the environmental-adjusted energy productivity of 15 energy-intensive industries during the 10th and 11th FYPs using the data envelopment analysis (DEA) approach. The results indicate that four of the 15 studied industries had achieved significant energy productivity improvements during the 11th FYP than that in the 10th FYP, which can mainly be attributed to the effective implementations of relevant ESER policies. In contrast, energy productivity of the rest 11 industries acquired relatively minor improvements during the whole decade.     

FDI and Economic Development: Evidence from China’s Regional Growth

Abstract:

Using China’s provincial data for 1978–2011, we examine the channels through which foreign direct investment (FDI) affects China’s regional growth and inequality. We find that FDI facilitates growth by enhancing physical and human capital accumulation. FDI also has a negative effect on output growth by crowding out domestic investment, reducing local government revenue, and increasing the opportunity cost of technology innovations. The imbalance of FDI inflows among regions widens the interregional growth gap through its effect on physical capital accumulation and technology progress while it narrows the growth gap by affecting the level of higher education, industrial structure, government revenue, degree of openness, and trade surplus.     

The price of carbon risk: Evidence from China’s bond market

Using a 2009–2019 sample of Chinese bond issuers, we examine the effect of carbon risk on bond financing costs. Relative to low carbon risk issuers, high carbon risk issuers have substantially larger bond credit spreads, mainly because their credit risk is greater and they invest the funds in non-green projects. This positive relationship is more pronounced for issuers with financing constraints, those not making a green transition and those in cities with stringent environmental regulations. We find a reversed effect during the COVID-19 pandemic. However, China’s carbon peak and carbon neutral goals have renewed the focus on carbon risk. Carbon risk also causes bond issuers to scale back production and negatively affects their likelihood of receiving long-term financial support. Our findings suggest that investors consider carbon risk and charge a corresponding risk premium.     

Government auditing and corruption control: Evidence from China’s provincial panel data

Since its foundation, China’s government auditing system has played a very important role in maintaining financial and economic order and improving government accountability and transparency. Though a great deal of research has discussed the role of government auditing in discovering and deterring corruption, there is little empirical evidence on whether government auditing actually helps to reduce corruption. Using China’s provincial panel data from 1999 to 2008, this paper empirically examines the role of government auditing in China’s corruption control initiatives. Our findings indicate that the number of irregularities detected in government auditing is positively related to the corruption level in that province, which means the more severe the corruption is in a province, the more irregularities in government accounts are found by local audit institutions. Also, post-audit rectification effort is negatively related to the corruption level in that province, indicating that greater rectification effort is associated with less corruption. This paper provides empirical evidence on how government auditing can contribute to curbing corruption, which is also helpful for understanding the role of China’s local audit institutions in government governance and can enrich the literature on both government auditing and corruption control.     

Cross country linkages and transmission of sovereign risk: Evidence from China’s credit default swaps

China’s climb to a trading powerhouse has changed its position in the world and therefore its relationships with other economies. As a result, its sovereign credit risk, which we measure by the pricing of its credit default swaps (CDS), now has the potential to greatly impact other sovereign CDS spreads. Employing a dynamic approach, we find that changes in China’s sovereign risk has strong contagion effects on its goods and service providers, while China is vulnerable to contagion effects from its major importers, suggesting sovereign risk spills over to other regions via the global supply chain. China’s success hurts some of the weaker countries in Europe by competing for their customers, while China faces strong competition itself from its export-focused neighbors. FDI and portfolio investment also affect the CDS relationships between China and other economies.     

Income Distribution and Aggregate Saving: Theory and China’s Evidence

Using a parsimonious heterogeneous-agent general equilibrium model, this study reveals a positive causal effect of income inequality on the aggregate saving rate. In the model economy, benevolent individuals save to leave offspring bequests. Since bequests are luxury, the rich have a higher marginal propensity to save. Then, else equal, a fall in income inequality will lower the economy-wide saving rate. The model predicts an augmented aggregate saving function: the aggregate saving rate depends positively not only on the aggregate income level, but also on the dispersion of income. We find some empirical support for this hypothesis using China’s province-level longitudinal data.     

China’s Exchange-Rate Regime Reform and Trade Between China and the Eurozone

This article investigates the effects of China’s exchange-rate regime reform on trade between China and the eurozone. Both the exchange rate between the euro (EUR) and the renminbi (RMB) and exchange-rate volatility are included in the autoregressive distributed lag (ARDL) model, and our empirical work also considers the third-country effect. Our findings show that, during the reform period, China’s exports to the eurozone are affected only by the EUR–RMB exchange rate per se and not by its volatility. However, neither the exchange rate nor its volatility significantly influences the eurozone’s exports to China during the reform period. Such asymmetry might be attributed to the discrepancy between Chinese exporters and their eurozone counterparts in the knowledge and ability to manage exchange-rate risk.     

Local government centralization and corporate ESG performance: Evidence from China’s county-to-district reform

As a city–county consolidation with Chinese characteristics, China’s county-to-district (CtD) reform transfers a county’s autonomy to a city, thereby strengthening the administrative, decision-making, fiscal and other powers of the prefecture-level municipal government, which effectively enables the centralization of local governments. Based on this exogenous quasi-natural experiment, we use a difference-in-differences (DID) approach to empirically examine the impact of prefecture-level municipal government centralization on companies’ ESG performance. The results show that municipal government centralization can significantly promote corporate ESG performance, which represents environmental protection, social responsibility and corporate governance behavior. The mechanism analysis also shows that the CtD reform can address market segmentation, alleviate policy uncertainty and reduce rent-seeking, which further improves ESG performance.     

Regional Energy Efficiency of China’s Commercial Sector: An Emerging Energy Consumer

This article applies a parametric metafrontier method and the Malmquist index to analyze the energy efficiency and its dynamic performance in China’s commercial sector from 1995 to 2013. The results indicate that the energy efficiency in China’s commercial sector is generally low, and there are significant regional differences and enormous energy-saving potentials. Relative to metafrontier, commercial sectors in eastern China have relatively higher energy efficiency; while those in central and western China have relatively low energy efficiency. Besides, the dynamic energy efficiency performance in China’s commercial sector has improved over the period. The technology improvement is a major driving factor to improve the energy efficiency in the commercial sectors of all the three regions.     

State ownership and banks’ information rents: Evidence from China

In a lending relationship, a bank with an information advantage regarding its client tends to hold up the borrower and charge higher interest rates. We conjecture that state-owned enterprises (SOEs), with worse information asymmetry, are subject to greater information rents. State-owned banks place less emphasis on information production and hence extract lower rents compared to profit-maximizing private banks. We use the decline of loan interest rates around the borrowers’ equity initial public offerings (IPOs) as the proxy of banks’ information rents. We find SOEs in China experience larger declines in loan interest rates around their IPOs; the central government-controlled Big Four banks exhibit smaller declines in rates they charge, and their rate declines concentrate on loans made to SOEs.     

Directors’ and Officers’ liability insurance and bond credit spreads: Evidence from China

Using hand-collected data on purchases of D&O insurance by Chinese listed firms for the period from 2008 to 2019, we empirically find that D&O insurance negatively associates with credit spreads. The negative relationship still holds after conducting a series of robustness tests and is not driven by the eyeball effect. We also show that D&O insurance can reduce credit spreads via the channels of internal controls, external monitoring, information asymmetry and default risk. Moreover, the negative effect of D&O insurance on credit spreads is more pronounced for non-state-owned firms, those located in regions with a low level of marketization or that employ rating agencies with a bad reputation. Our study complements the literature on the credit spreads and corporate governance.     

Determinants of Exports in China’s Meat Industry: A Gravity Model Analysis

ABSTRACT

What are the major determinants of China’s meat exports flows? In addressing this question, we propose a commodity-specific gravity model. This study has employed a unique dataset of 20 years (1997–2016) for China’s pork exports flows to its 31 regular trading partners to estimate the commodity-specific gravity model. The PPML and Heckman selection models are simultaneously estimated to confirm the robustness of the findings. The results reveal that GDP, exchange rate, common language, and country land area are the significant factors affecting the Chinese pork exports flows. Moreover, China’s WTO membership, the ‘Belt & Road’ Initiative, and the common borders have a positive significant impact on its exports of pork.     

Structural Changes in China’s Import Market: A Comparison with Korea’s Exports to China

The article examines the structural changes of China’s import market for domestic demand and the corresponding structural changes of Korea’s exports to China for Chinese domestic demand. Using 8-digit HS code data covering the period 2006–2014 and analyzing the processing steps as well as by industry, this study reveals that while the share of ordinary trade in total China’s imports has increased rapidly, the share of processing trade has decreased continuously since the mid-2000s. The article also shows that Korea’s exports to China is still processing trade-oriented. The slowdown of Korea’s exports to China is because of the concentration on processing trade, intermediate goods, electronics and chemistry.     

Total Factor Productivity and Energy Intensity: An Empirical Study of China’s Cement Industry

China is the largest cement producer and consumer in the world. The cement industry’s rapid growth has led to a large demand of energy. This study reviews China’s cement industry in terms of energy intensity and examines the effects of technological progress on energy intensity. It also discusses the feasibility of achieving China’s energy reduction targets. We employ the Granger causality test and find that the total factor productivity or technological progress causes the energy intensity of the cement industry. Impulse responses analysis also proves that in the long run the technological change contributes to the decline in energy intensity of cement production.     

Labor protection,information disclosure and analyst forecasts: Evidence from China’s Labor Contract Law

Labor protection increases employees’ stability and strengthens their monitoring role, improving firms’ information environment and increasing analysts’ earnings forecast accuracy. Using the implementation of China’s Labor Contract Law as a quasi-natural experiment, we find that labor protection significantly improves analyst forecasts. This positive impact is stronger when agency problems are weaker, board independence is greater, corporate reputation is better and industry competition is more intense. Enhanced labor protection significantly reduces firms’ business risk and accrual-based earnings management, decreases stock price synchronicity and increases market pricing efficiency. Our findings of significant impacts of China’s Labor Contract Law on analysts’ forecasting behaviors offer important guidance for promoting the development of the Chinese capital market and policy making in labor protection.     

State ownership,soft-budget constraints,and cash holdings: Evidence from China’s privatized firms

We study the relation between state ownership and cash holdings in China’s share-issue privatized firms from 2000 to 2012. We find that the level of cash holdings increases as state ownership declines. For the average firm in our sample, a 10 percentage-point decline in state ownership leads to an increase of about RMB 55 million in cash holdings. This negative relation can be attributable to the soft-budget constraint (SBC) inherent in state ownership. The Chinese financial system is dominated by the state-owned banks, an environment very conducive for the SBC effect. We further examine and quantify the effect of state ownership on the value of cash and find that the marginal value of cash increases as state ownership declines. The next RMB added to cash reserves of the average firm is valued at RMB 0.96 by the market. The marginal value of cash in firms with zero state ownership is RMB 0.36 higher than in firms with majority state ownership. The SBC effect exacerbates agency problems inherent in state-controlled enterprises, contributing to their lower value of cash.     

Asymmetric effect of financial stress on China’s precious metals market: Evidence from a quantile-on-quantile regression

Constructing the China’s financial stress index (CFSI), this paper investigates the asymmetric impact of financial stress on precious metals by employing a novel quantile-on-quantile approach. The results show that precious metals can be used as a safe haven to hedge financial market risks. However, the risk aversion of precious metals varies under different precious metals market conditions. In addition, the structural changes in the effect on precious metals are found after the global financial crisis, reflecting the heterogeneity of the relationship between financial stress and precious metals before and after the global financial crisis. These results have meaningful implications for investors and risk managers.     

Job satisfaction and firm leverage: Evidence from the “China’s Best Employer Award 100” winners

In this study, we examine the relationship between job satisfaction and firm leverage using a sample of Chinese listed firms. We find that in a sample of “China’s 100 Best Employers Award” winners during 2011–2017, job satisfaction is negatively associated with firm leverage. The effect is more pronounced in firms with higher distress risk and operating in human capital intensive industries. We confirm the validity of the main findings using a matched sample and a series of robustness checks. Overall, our results indicate that firms can credibly demonstrate their commitment to stakeholders and re-shape their capital structure by improving job satisfaction.     

Value and momentum from investors’ perspective: Evidence from professionals’ risk-ratings

We conduct a controlled experiment with financial professionals to examine more directly whether value and momentum reflect risk factors or mispricing. By eliciting their risk perceptions and return expectations for company stocks, we identify what constitutes a risky investment from the point of investors. Contrary to the risk factor hypothesis, value and momentum stocks are regarded as less risky. However, other factors, such as size and beta, fall in line with their traditional interpretation as risk factors. Consistent with empirical findings, we observe higher return expectations for momentum stocks, raising questions on analysts believing in a risk–return trade-off.