Qifei Zhu

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.

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

Revise and Resubmit, Review of Financial Studies

MFA (2024), ABFER (2024)

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.

(Re)call of Duty: Securities Lending and Proxy Voting with Tao Li

SFS Cavalcade NA (2024)

Taking advantage of a novel dataset on individual mutual funds' securities lending activities, we provide the first systematic evidence that mutual funds, especially ESG funds, recall loaned shares prior to voting record dates. Funds' recall-voting sensitivities differ based on their stated lending policies, ownership stakes in portfolio firms, and holding horizons, indicating heterogeneity in funds' perceived values of voting rights. Recalled shares are more likely to be voted against management proposals, and in favor of shareholder proposals and dissident slates in proxy contests. Recall-sensitive funds attract higher fund flows and do not suffer poor performance because of foregone lending revenues.

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.

Corporate Biodiversity Footprints with Kai Zhu and Eric Zou

An ongoing debate revolves around how corporations should address biodiversity issues, yet there is limited measurement of actual biodiversity impact from corporate production. We link production emissions from publicly listed companies in the United States to two canonical ecological datasets that provide nationwide, long-term monitoring of animal and vegetation biodiversity. Our preliminary analysis shows that increases in toxic emissions from corporate production are associated with significant declines in bird population count and diversity, with effects lasting multiple years. Vegetation biodiversity is more resilient to these emissions. Air discharge is a significant channel, while imprecise impacts are found for water and land discharge. We also identify an inverse-U shaped damage function, indicating that corporate impacts on biodiversity are greatest in areas with already poor biodiversity conditions (less resilient ecosystems) and in biodiversity hotspots.

Resting Working Papers

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

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