-- Forthcoming at Journal of Finance
-- 2021 Cass Finance Research Day Best Paper Award
-- Cited as supporting evidence in testimony for Connecticut’s S.B. 7, an act that expands the state’s PSL law in several respects (effective from October 2024); also cited (twice) by Minnesota Department of Labor and Industry (see also here) in support of Minnesota’s Earned Sick and Safe Time law (effective from January 2024); and covered/referenced by various NGOs and media outlets
This paper exploits the staggered implementation of paid sick leave (PSL) mandates to assess their real effects on U.S. corporations. We find that mandatory access to sick pay leads to higher labor productivity and firm profitability. These performance improvements concentrate in industries that require more physical presence in the workplace, which suggests that PSL generates a positive health externality. The effects are also more pronounced for firms with more expensive labor force, indicating that employees who value sick pay benefits have high human capital, and in counties with higher social capital, where the risk of absenteeism may be less severe.
-- Forthcoming at Annals of Operations Research
Risk assessment is crucial for financial institutions, especially financial holding companies (FHCs), due to the inherent organizational complexity and systemic risks embedded in their interconnected structures. We propose a general and flexible disclosure-to-network framework that integrates topic modeling and network analysis to construct a risk-similarity-based financial network from firms’ textual risk disclosures. The key idea is to convert unstructured narratives into firm-year risk representations and define inter-firm links based on similarity in disclosed risk exposures, yielding connectedness measures that are comparable across institutions and trackable over time. We employ Sentence Latent Dirichlet Allocation (Sent-LDA; Bao and Datta, 2014) as a robust topic modeling approach on risk disclosure text in Chinese FHC annual reports over 2013–2020. We document a sustained rise in interconnectedness with spikes around the 2015–2016 market turmoil and later regulatory tightening. Banks are the most connected entities; subsidiaries are more interconnected than parents; and cross-sector subsidiary linkages are stronger within the same holding group. Higher connectedness is associated with lower profitability and higher bankruptcy risk, highlighting implications for systemic-risk monitoring.
Following China's regional emissions trading system (ETS) pilot programs, the government announced a nationwide ETS plan in December 2017, several years before trading began in 2021. We use this announcement to study how firms respond to anticipated future carbon pricing. Among listed firms outside the pilot regions, the announcement generates a negative market reaction that is more pronounced in ex ante higher-emission industries. Using a continuous-treatment difference-in-differences design over 2013--2020, we find little evidence that more exposed listed firms increase their own green patenting. Instead, green patents and citation impact increase at the corporate-group level, driven mainly by affiliated firms. The response is concentrated among corporate groups whose listed firms have stronger internal controls, better reputation, and greater investment efficiency. Affiliates' assets and sales decline, whereas we find little evidence of operational adjustment at listed firms. Together, the results are consistent with a strategic within-group reallocation of green innovation and associated adjustment burdens in response to anticipated carbon pricing. Our findings highlight regulatory anticipation as an important channel through which climate policy can reshape not only the level, but also the organizational allocation, of innovative activity before formal implementation.
This paper studies whether independent directors (IDs) can serve as political-legal protection for firms. We exploit China's 2013 Rule 18, which required government officials to resign from independent-director positions in listed firms. After losing official IDs, affected firms experience increases in the likelihood of being sued, number of lawsuits, and financial stakes involved in litigation. The effects are stronger when departing directors hold higher political rank or positions with greater capacity to influence courts or judicial personnel, in regions with lower judicial budgets or weaker legal institutions, and among non-state-owned firms. Conditional on litigation, affected firms also experience higher case loss rates after the reform. The findings suggest that politically connected IDs can reduce firms' observed litigation exposure by lowering potential plaintiffs' expected payoff from suing. The results highlight a dark side of board independence in settings where political influence over courts remains feasible.
-- 2018 Cass Finance Research Day Best Paper Award
-- My coauthor and longtime friend Weihan Ding (PhD, LSE) was an Assistant Professor in Economics at the University of Exeter, UK. He passed away unexpectedly on January 20, 2023, aged 31. This project would not have been possible without his invaluable contribution and dedicated work. He was a sharp economist, a devoted teacher, a brilliant son, a perfect husband, a responsible father, and a loyal friend. He was a kind, fun, generous, and lovely guy; a wonderful human being and a beautiful soul. May you Rest In Perfect Peace, Weihan. You will be sorely missed.
(https://weihanding.muchloved.com/)
We study the optimal disclosure policy in security issuance using a Bayesian persuasion approach. An issuer designs a signal to persuade an investment bank to underwrite. The bank forms a posterior on the basis of the signal and makes its underwriting and retention decisions. When there is no demand uncertainty, a partially informative disclosure is enough to curb primary market underpricing due to informed sales by the underwriter in the secondary market. When demand is uncertain, the underwriter may shy away because of more retention than his privately optimal level and larger losses due to increased total cost of capital. The optimal disclosure can solve such hold-up problem resulting from weak demand and induce the bank to underwrite. We derive predictions on the effects of the issuer's fundamentals, the underwriter's cost of capital, the demand uncertainty, and the market liquidity on the informativeness of the optimal disclosure. Our model not only captures the adverse selection problem in the originate-to-distribute lending model, but also rationalizes the phenomenon that arrangers may be willing to retain large and costly stakes in leveraged loan syndication. Finally, if viewed as an extant blockholder, we show that the underwriter may exert governance by exit to promote more transparent disclosure by the issuing firm.
(Under revision)
This paper examines the spillover effects of hostile takeovers on target firms’ product-market peers, identified via text-based network industry classifications (TNIC). Using target takeover announcements as exogenous shocks to peers’ exposure to control threats, we find that exposed peers report more disaggregated balance sheet items, though income statements remain unchanged. Despite this increased balance sheet granularity, analyst information production and market liquidity do not improve, as these rely more on income statement information. Nevertheless, exposed peers exhibit lower idiosyncratic volatility. More detailed balance sheets are also associated with a significant increase in merger proposals received. Importantly, all effects are concentrated among peers of targets that are not ultimately acquired. Overall, hostile takeovers appear to generate positive externalities for peers’ information environments: affected firms expand balance sheet detail as a cost-effective way to reduce valuation uncertainty in future mergers.
We consider a Cournot competition model to study a logistics service provider’s (LSP’s) decision to develop sustainable logistics while competing with a logistics service integrator (LSI) in logistics service and collaborating with the LSI in cargo canvassing. The LSP’s costly effort to develop sustainable logistics can enhance its market competitiveness and reduce pollution per unit of logistics service. We find that while sustainable logistics can benefit the LSP, its impact on the LSI’s profit depends on the canvassing service price charged by the LSI. Notably, if this price is set strategically by the LSI rather than fixed exogenously, the LSI can also benefit from the LSP’s sustainable logistics by optimally balancing its logistics and canvassing profits. We show that sustainable logistics may still fail to reduce environmental impact, even under endogenous service pricing. However, we also identify conditions under which economic and environmental sustainability can be coordinated.
We examine how two types of supply chain transparency (SCT—cost and relationship transparency) interact with three types of supply chain visibility (SCV—demand, supply, and market visibility) and how these interactions affect firm performance through surveys with 297 manufacturing and 112 service firms in China. Analysis of the survey data reveals that high performance depends on distinct combinations of SCT and SCV types, with demand visibility emerging as the most critical SCV. Moreover, the roles of cost and relationship transparency differ between manufacturing and service firms. Our study contributes to the literature by highlighting the need for a holistic approach that leverages both SCT and SCV to enhance performance.