01. Investor Protection and Firm Liquidity
PAUL BROCKMAN 香港理工大学
DENNIS Y. CHUNG 香港理工大学
The purpose of this study is to investigate the relation between investor protection and firm liquidity. We posit that less protective environments lead to wider bid-ask spreads and thinner depths because they fail to minimize information asymmetries. The Hong Kong equity market provides a unique opportunity to compare liquidity costs across distinct investor protection environments, but still within a common trading mechanism and currency. Our empirical findings verify that firm liquidity is significantly affected by investor protection. Regression and matched-sample results show that Hong Kong-based equities exhibit narrower spreads and thicker depths than their China-based counterparts.
02. What if Trading Location Is Different from Business Location? Evidence from the Jardine Group
KALOK CHAN (陳家樂) 香港科技大学
ALLAUDEEN HAMEED 新加坡国立大学
SIE TING LAU 南洋理工大学
We examine the price behavior and market activity of the Jardine Group companies after they were delisted from Hong Kong in 1994. Although the trading activity of the Jardine Group moved to Singapore, the core businesses remained. Evidence indicates the Jardine stocks are correlated less (more) with the Hong Kong (Singapore) market after the delisting. This result cannot be explained by various hypotheses, such as relocation of core business, time-varying betas, migration of trading activity, and currency and tax distortions. We conclude that price fluctuations are affected by country-specific investor sentiment.
03. Correlated Trading and Location
LEI FENG 麦肯锡公司
MARK S. SEASHOLES 加利福尼亚大学伯克利分校
This paper analyzes the trading behavior of stock market investors. Purchases and sales are highly correlated when we divide investors geographically. Investors who live near a firm's headquarters react in a similar manner to releases of public information. We are able to make this identification by exploiting a unique feature of individual brokerage accounts in the People's Republic of China. The data allow us to pinpoint an investor's location at the time he or she places a trade. Our results are consistent with a simple, rational expectations model of heterogeneously informed investors.
04. Information Asymmetry and Asset Prices: Evidence from the China Foreign Share Discount
KALOK CHAN (陳家樂) 香港科技大学
ALBERT J. MENKVELD 阿姆斯特丹自由大学
We examine the effect of information asymmetry on equity prices in the local A- and foreign B-share market in China. We construct measures of information asymmetry based on market microstructure models, and find that they explain a significant portion of cross-sectional variation in B-share discounts, even after controlling for other factors. On a univariate basis, the price impact measure and the adverse selection component of the bid-ask spread in the A- and B-share markets explains 44% and 46% of the variation in B-share discounts. On a multivariate basis, both measures are far more statistically significant than any of the control variables.
05. The Brain Gain of Corporate Boards: Evidence from China
MARIASSUNTA GIANNETTI 斯德哥尔摩经济学院
We study the impact of directors with foreign experience on firm performance in emerging markets. Using a unique data set from China, we exploit the introduction of policies to attract talented emigrants and increase the supply of individuals with foreign experience in different provinces at different times. We document that performance increases after firms hire directors with foreign experience and identify the channels through which the emigration of talent may lead to a brain gain. Our findings provide evidence on how directors transmit knowledge about management practices and corporate governance to firms in emerging markets.
06. The Impact of Incentives and Communication Costs on Information Production and Use: Evidence from Bank Lending
PHILIP E. STRAHAN 波士顿学院卡罗尔管理学院
In 2002 and 2003, many Chinese banks implemented reforms that delegated authority to individual loan officers. The change followed China's entrance into the WTO and offers a plausibly exogenous shock to loan officer incentives to produce information. We find that the bank's internal risk rating becomes a stronger predictor of loan interest rates and ex post outcomes after reform. When the loan officer and the branch president who approves the loan work together longer, the rating also becomes more strongly related to loan prices and outcomes. Our results highlight how incentives and communication costs affect information production and use.
07. Government Credit, a Double-Edged Sword: Evidence from the China Development Bank
HONG RU (茹弘) 南洋理工大学
Using proprietary data from the China Development Bank (CDB), this paper examines the effects of government credit on firm activities. Tracing the effects of government credit across different levels of the supply chain, I find that CDB industrial loans to state-owned enterprises (SOEs) crowd out private firms in the same industry but crowd in private firms in downstream industries. On average, a $1 increase in CDB SOE loans leads to a $0.20 decrease in private firms' assets. Moreover, CDB infrastructure loans crowd in private firms. I use exogenous timing of municipal politicians' turnover as an instrument for CDB credit flows.
08. The Impact of Salience on Investor Behavior: Evidence from a Natural Experiment
CARY FRYDMAN 南加州大学马歇尔商学院
We test whether the display of information causally affects investor behavior in a high-stakes trading environment. Using investor-level brokerage data from China and a natural experiment, we estimate the impact of a shock that increased the salience of a stock's purchase price but did not change the investor's information set. We employ a difference-in-differences approach and find that the salience shock causally increased the disposition effect by 17%. We use microdata to document substantial heterogeneity across investors in the treatment effect. A previously documented trading pattern, the “rank effect,” explains heterogeneity in the change in the disposition effect.
09. Local Crowding-Out in China
YI HUANG 日内瓦国际与发展研究院
MARCO PAGANO 那不勒斯费德里克二世大学
UGO PANIZZA 日内瓦国际与发展研究院
In China, between 2006 and 2013, local public debt crowded out the investment of private firms by tightening their funding constraints while leaving state-owned firms' investment unaffected. We establish this result using a purpose-built data set for Chinese local public debt. Private firms invest less in cities with more public debt, with the reduction in investment larger for firms located farther from banks in other cities or more dependent on external funding. Moreover, in cities where public debt is high, private firms' investment is more sensitive to internal cash flow.
10. The Misallocation of Finance
TONI M. WHITED 密歇根大学
JAKE ZHAO 北京大学汇丰商学院
We estimate real losses arising from the cross-sectional misallocation of financial liabilities. Extending a production-based framework of misallocation measurement to the liabilities side of the balance sheet and using manufacturing firm data from the United States and China, we find significant misallocation of debt and equity in China but not the United States. Reallocating liabilities of firms in China to mimic U.S. efficiency would produce gains of 51% to 69% in real value-added, with only 17% to 21% stemming from inefficient debt-equity combinations. For Chinese firms that are large or in developed cities, we estimate lower distortionary financing costs.
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