Qifei Zhu

To address the question of whether and why institutional investors increasingly reveal preferences for firms with high-ESG profiles, we examine changes in their equity portfolios. We find that investors’ preferences for corporate ESG depend critically on their investment horizons: investors with longer horizons tend to prefer higher-ESG firms, while short-term investors prefer the opposite. Consistent with the importance of horizon, we find that investors behave more patiently toward high-ESG firms, selling less after negative earnings surprises or poor stock returns. We further confirm our findings using inclusions and exclusions from the FTSE4Good Index as shocks to firms' ESG profile.

Climate Regulatory Risks and Corporate Bonds with Lee Seltzer and Laura Starks

Revise and Resubmit, Journal of Financial Economics

UNPRI Academic Conference* (2019), AFA (2021 Scheduled), Conference on Financial Market Regulation* (2021)

Examining how climate and other environmental regulatory risks affect bond risk and pricing, we find that bond credit ratings and yield spreads appear to be influenced by a firm's environmental performance along with its regulatory conditions. Firms with poor environmental profiles tend to have lower credit ratings and higher yield spreads, particularly when the firm is located in a state with more stringent environmental regulations. Using the Paris Agreement as a shock to expected climate regulation, we provide evidence of a causal relation between climate regulatory risks and the credit ratings and yield spreads of bonds with problematic environmental profiles.

CEO Hometown Favoritism in Corporate Environmental Policies with Wei Li and Qiping Xu

Revise and Resubmit, Management Science

FMA (2021), MFA (2022)

Exploiting within-firm variations in plant-level toxic releases, we find evidence that firms pollute significantly less in plants near their CEOs' hometowns, suggesting that managerial hometown attachment affects corporate environmental policies. Plants near CEOs' hometowns achieve lower toxic release by investing more in abatement and waste management activities. Analyses using CEO turnover events provide supportive evidence. Hometown emission reduction is stronger for poorly-governed firms, and is significantly weakened following an exogenous reduction in agency conflicts. These findings suggest that CEOs' personal motives affect corporate pollution when agency issue is severe.

Persistent Equity Lenders and Limits to Arbitrage: Position-level Evidence from Mutual Funds with Xi Dong

Using newly available data on mutual funds' equity lending at the position level, we find a striking pattern that equity lending is persistent: for the same stock, a past lender fund is ten times more likely to have it on loan than a fund that did not lend. We argue that such persistence is driven by heterogeneity in funds' willingness to supply lendable shares and that conventional lending supply measures understate short-sale constraints. Consequently, when existing lenders sell their shares, equity lending supply drops and lending fees spike, even if lenders' selling is motivated by non-informational considerations. After lender exits, stock prices become less efficient and more likely to be overpriced.

Underwriter Competition and Institutional Loan Pricing with Will Shuo Liu, Zheng Sun, and Chenyu Xiong

EFA (2023)

This paper studies how competition among potential underwriters affects the pricing process of institutional loans. Underwriters trade off between setting the initial loan rates aggressively low in order to win underwriting mandates and having to adjust the rates upward in the book-building process, which heightens the risk of losing borrowers' businesses in the future. We find that the intensity of underwriter competition negatively affects initial loan spreads and is associated with more upward rate adjustments. Using exogenous shocks that reduce banks' ability to underwrite future deals, we find lower subsequent rate adjustments in the affected market segments, supporting a causal interpretation.

Paid Family Leave, Inventor Mobility, and Firm Innovation with Yaling Jin

Revise and Resubmit, Strategic Management Journal

We exploit the adoption of US state-level Paid Family Leave (PFL) laws to test whether family-friendly policies affect firm innovation. We find that PFL policies increase the innovation outputs of firms whose employees are more exposed to these laws. The stronger attraction and the higher retention of female inventors contribute to the output gains. Tests at the state level suggest that younger inventors move into states after PFL adoption, and the move-in inventors are generally more productive than the move-out inventors at the personal level. Further tests at inventor level show that females are less likely to drop out from the inventor career after PFL adoption. Overall, the behavior change in inventor career choices is the main channel through which PFLs affect firm innovation.

The Opioid Epidemic and Local Public Financing: Evidence from Municipal Bonds with Wei Li

MFA Annual Conference (2020)

This paper examines the impact of the opioid epidemic on the financing costs of local governments. We find that a higher county-level drug overdose death rate is associated with an increase in the offering yield spread of local municipal bonds. A difference-in-differences analysis around introductions of must-access Prescription Drug Monitoring Programs (PDMP) and an instrumental variable approach using opioid makers' marketing payment to local physicians suggest that the impact of opioid abuses on municipal borrowing cost is likely causal. The opioid crisis reduces future revenues of local governments and increases police and criminal justice expenditures.

Do Foreign Institutional Investors Deter Insider Trading? with Claire Yurong Hong and Weikai Li

Singapore Scholars Symposium (2018), The Fourth Annual Volatility Institute Conference at NYU Shanghai* (2018), SFS Cavalcade Asia-Pacific (2018), CICF (2019), NFA* (2019)

Median Coverage: Canadian Investment Review

This paper examines the disciplinary effect of foreign institutional investors on opportunistic insider trading. Using a novel global insider trading data containing 35,557 firms from 26 countries over the period 2000-2015, we find that greater foreign institutional ownership significantly reduces the profitability of insider trading, above and beyond the effect of domestic institutional ownership. Using the exogenous variation in foreign institutional ownership induced by MSCI index inclusion, we show that the effect is causal. The impact of foreign investors is stronger in countries with weak insider trading regulations and poor institutional environment, and the effect mainly operates through the monitoring channel, rather than improved information environment.

(Re)call of Duty: Securities Lending and Proxy Voting with Tao Li (Draft coming soon!)

(* indicates presentation by coauthor)