11. Market Segmentation and Differential Reactions of Local and Foreign Investors to Analyst Recommendations
This paper uses segmented dual-class shares of Chinese firms—A shares traded by local investors and H shares traded in Hong Kong by foreign investors—to document a rich pattern in the differential reactions of local and foreign investors to analyst recommendations. This pattern reveals that social connections between analysts and investors affect investor reactions to analyst recommendations. Because of the investors’ differential reactions, analyst recommendations may exacerbate, rather than attenuate, the market segmentation between the two share classes.
12. Foreign Direct Investment, Trade Credit, and Transmission of Global Liquidity Shocks: Evidence from Chinese Manufacturing Firms
We empirically explore a trade credit channel through which foreign direct investment (FDI) firms can propagate global liquidity shocks to the host country despite its tight controls on portfolio flows. In a large sample of Chinese manufacturing firms, we find robust evidence that FDI firms provide more trade credit than local firms during tight domestic credit periods and that a favorable global liquidity shock amplifies FDI firms’ advantage in trade credit provision. Moreover, the differential responses of FDI and local firms are stronger in financially more dependent industries or in Chinese provinces with less financial depth.
13. Who Captures the Power of the Pen?
We study how government control affects the roles of the media as an information intermediary and a corporate monitor. Comparing a large sample of news articles written by state-controlled and market-oriented Chinese media, we find that articles by the market-oriented media are more critical, more accurate, more comprehensive, and timelier than those by the state-controlled media. Moreover, only articles by the market-oriented media have a significant corporate governance impact. Subsample analyses, interviews with journalists, and a survey of university students suggest that the market-oriented media’s superior effects are explained by their operating efficiency and independence.
14. Decentralized Privatization and Change of Control Rights in China
The design and implementation of privatization in China is unique in that both are decentralized and administered by the local governments. Based on a proprietary survey data set containing 3,000 firms in over 200 cities, this paper studies privatization choices and outcomes, as well as the mechanism behind the outcomes. We find that less political opposition to labor downsizing and greater fiscal capacity prompt cities to choose direct sales to insiders (MBOs). This method transfers control rights to private owners, retains limited government supports, imposes hardened budget constraints, allows for restructuring, and achieves performance improvement.
15. Credit Allocation Under Economic Stimulus: Evidence from China
Lin William Cong(叢林) 芝加哥大学布斯商学院（现：康奈尔大学约翰逊管理学院研究生院）
Jacopo Ponticelli 美国西北大学凯洛格管理学院
We study credit allocation across firms and its real effects during China’s economic stimulus plan of 2009–2010. We match confidential loan-level data from the nineteen largest Chinese banks with firm-level data on manufacturing firms. We document that the stimulus-driven credit expansion disproportionately favored state-owned firms and firms with a lower average product of capital, reversing the process of capital reallocation toward private firms that characterized China’s high growth before 2008. We argue that implicit government guarantees for state-connected firms become more prominent during recessions and can explain this reversal.
16. Financial Illiteracy and Pension Contributions: A Field Experiment on Compound Interest in China
Changcheng Song 新加坡管理大学
I conduct a field experiment to study the relationship between peoples’ misunderstanding of compound interest and their pension contributions in rural China. I find that explaining the concept of compound interest to subjects increased pension contributions by roughly 40%. The treatment effect is larger for those who underestimate compound interest than for those who overestimate compound interest. Moreover, financial education enables households to partially correct their misunderstanding of compound interest. I structurally estimate the level of misunderstanding of compound interest and conduct a counterfactual welfare analysis: lifetime utility increases by about 10% if subjects’ misunderstanding of compound interest is eliminated.
17. The Role of Government in Firm Outcomes
Ran Duchin 华盛顿大学福斯特商学院
Using a unique setting in China, where the geographic distance between collective firms and local governments is highly persistent because of legal restrictions on land ownership and mobility, we investigate the role of government involvement in small firms. In our analysis of survey responses, we find that weaker government involvement, measured by greater distance from government, is associated with higher firm autonomy and reduced taxes, protectionism, and anticompetitive behavior. In our analysis of firm-level financial data, we find that distant firms have better operating performance, higher growth, and higher entry rates. We find similar results around exogenous government office relocations.
18. The Chinese Warrants Bubble: Evidence from Brokerage Account Records
Neil D Pearson 伊利诺伊大学厄巴纳-香槟分校
We use brokerage account records to study trading during the Chinese put warrants bubble and find evidence consistent with extrapolative theories of speculative asset price bubbles. We identify the event that started the bubble and show that investors engaged in a form of feedback trading based on their own past returns. The interaction of feedback trading with the precipitating event caused additional buying and price increases in a feedback loop, and estimates of the trading volume due to this mechanism explain prices and returns during the bubble.
19. Winners, Losers, and Regulators in a Derivatives Market Bubble
Avanidhar Subrahmanyam 加州大学洛杉矶分校安德森商学院
We use proprietary brokerage data to study trading patterns within a well-known financial market bubble: the Chinese warrants bubble. Persistently successful investors trade very actively and exhibit characteristics of de facto market makers. Unskilled investors unprofitably trend-chase and increase holdings in out-of-the-money warrants near expiration, whereas sophisticated investors do the reverse. We find that regulators did not properly forecast trading frenzies, as the prespecified price limits often exclude the fundamental values of warrants.
20. User Interface and Firsthand Experience in Retail Investing
Using data from a major online peer-to-peer lending platform, we document that, due to time pressure, investors appear to focus on interest rates and only partially account for credit ratings in their decisions. The effect is stronger for mobile-based investors than for PC-based ones. Our evidence suggests that this variation is caused by the difference in information content on the interfaces rather than differences in the devices’ physical attributes per se. Investors improve their decisions by slowing down and paying more attention to credit ratings after experiencing a loan default firsthand, but not after observing others experiencing defaults.
21. The Whack-a-Mole Game: Tobin Taxes and Trading Frenzy
To dampen trading frenzy in the stock market, the Chinese government tripled the stamp tax for stock trading on May 30, 2007. The greatly increased trading cost triggered a migration of the trading frenzy from the stock market to the warrant market, which was not subject to the stamp tax. This migration exacerbated a price bubble in the warrant market. Our analysis of investor account data uncovers not only large inflows of new investors to the warrant market but also greatly intensified trading by existing warrant investors. This episode exemplifies the so-called “whack-a-mole” game in financial regulations.
22. Capital Spillover, House Prices, and Consumer Spending: Quasi-Experimental Evidence from House Purchase Restrictions
We use a unique quasi-experiment–spillovers from the imposition of purchase restrictions on local housing to nearby unregulated cities–to study the effects of out-of-town housing demand on house prices and consumer spending. While these restrictions effectively stymied the surge in local house prices, they induced capital flight and sharp abnormal increases in house prices in nearby unregulated cities. The effect of the house price increases on consumer spending is positive in the aggregate, but echoing Favilukis and Van Nieuwerburgh (2021), is redistributive, that is, negative for renters and positive for homeowners.
23. Extrapolative Bubbles and Trading Volume
Cameron Peng 伦敦政治经济学院
We propose an extrapolative model of bubbles to explain the sharp rise in prices and volume observed in historical financial bubbles. The model generates a novel mechanism for volume: because of the interaction between extrapolative beliefs and disposition effects, investors are quick to not only buy assets with positive past returns but also sell them if good returns continue. Using account-level transaction data on the 2014–2015 Chinese stock market bubble, we test and confirm the model’s predictions about trading volume. We quantify the magnitude of the proposed mechanism and show that it can increase trading volume by another 30%.
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