(New version coming soon)
-- 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 examines the impact of the staggered implementation of paid sick leave (PSL) mandates on U.S. corporations. We find that mandatory sick pay increases labor productivity and firm profitability. These effects hold for listed firms and establishmentlevel data, and are robust across alternative empirical specifications. The improvements in performance are more pronounced in firms with less remote work and with greater human capital, consistent with the interpretation that PSL mandates enhance public health and facilitate firm-employee matching. Performance gains are also larger for firms in counties with higher social capital, where absenteeism risks might be lower.
-- R&R
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.
(Under review)
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.
Following China’s regional emissions trading system (ETS) pilot programs in 2013, the government announced a nationwide ETS plan in December 2017, several years before it became operational in 2021. Focusing on listed firms located outside the pilot regions, this paper examines how firms respond to regulatory anticipation of future carbon pricing. We first document that the stock market reacts negatively to the announcement, with firms in ex ante higher-emission industries experiencing more negative returns. We then use the announcement as an exogenous shock to firms’ expectations about future carbon pricing and study its effects on green innovation over 2013–2020. Interestingly, although listed firms facing greater carbon cost exposure do not significantly increase their own green innovation, their affiliated firms generate more and higher-quality green patents, driving the overall increase in green innovation within the same corporate network. The positive innovation response is concentrated in corporate groups whose listed firms exhibit stronger internal control, better reputation, and higher investment efficiency. Moreover, affiliated firms experience declines in sales and assets, consistent with a strategic downscaling that facilitates resource reallocation toward green innovation and helps listed firms mitigate anticipated carbon pricing risks. In contrast, we find no operational adjustments among listed firms themselves. Overall, the results highlight regulatory anticipation as a key channel through which carbon pricing risk reshapes green innovation strategies within corporate boundaries.
Data has emerged as a key factor of production alongside land, capital, labor, and technology, reshaping how firms organize innovation in the digital economy. Yet whether firms’ use of data technologies translates into more advanced forms of environmentally oriented innovation remains insufficiently understood. This paper examines its implications for the complexity of corporate green innovation. Using a panel of Chinese non-financial A-share listed firms from 2010 to 2023, we find that higher data technology utilization is associated with the generation of significantly more complex green patents, measured by the breadth of technological knowledge embodied in green patents. The effect is stronger for pollution-intensive firms, non-state-owned enterprises, and firms located in regions with stronger intellectual property protection. Further analyses suggest that data technology utilization enhances green innovation complexity by improving decision-support capabilities and the efficiency of capital and labor allocation. Overall, the findings highlight the role of advanced data technologies as organizational capabilities that shape the quality and structure of green innovation, offering new evidence on how a data-driven approach can support environmentally sustainable and socially responsible innovation.
-- 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.