-- 3rd round R&R at Journal of Finance
-- 2021 Cass Finance Research Day Best Paper Award
-- Cited as supporting evidence in the testimony for Connecticut’s S.B. 7, an act that expands the state’s PSL law in numerous ways (effective from October 2024); also cited by the Minnesota Department of Labor and Industry in support of Minnesota’s Earned Sick and Safe Time law (effective from January 2024)
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.
(Under review)
This paper examines the impact of politically connected independent directors (IDs) on corporate litigation risk. Exploiting a reform in China that mandates the resignation of government officials serving as IDs, we show that their departure heightens litigation risk, as evidenced by an increased likelihood of lawsuits, a higher number of cases, and greater financial exposures. These effects are stronger for: (i) firms with IDs holding prominent political and judicial influence, (ii) firms in provinces with lower judicial budgets, (iii) firms in regions with weaker legal institutions, and (iv) non-state-owned firms. Post-reform, affected firms also experience higher case loss rates. Overall, our findings highlight judicial interference and court capture by official IDs—non-executive board members with no material or financial ties to companies beyond their sitting fees—as key mechanisms fostering a biased legal environment favorable to their firms.
-- R&R at Annals of Operations Research
Drawing on the methodologies of Bao and Datta (2014) and Hoberg and Phillips (2016), we develop a novel framework to quantify interconnectedness between parent financial holding companies (FHCs) and their subsidiaries by applying unsupervised learning techniques to risk disclosure narratives in annual reports of Chinese FHCs from 2013 to 2020. By constructing a dynamic network of firms based on shared risk exposures, our analysis reveals that the formation of FHCs significantly amplifies inter-firm connectivity, with sharp spikes during periods of regulatory change and market instability. Banks emerge as the most connected entities within the FHC networks, while insurance companies rank as the least. Linkages among subsidiaries are more pronounced than those among parent FHCs, and cross-sector connectedness among subsidiaries are even stronger when they are affiliated with the same parents. Finally, we find that greater interconnectedness is associated with poorer financial performance and greater bankruptcy risk. By mapping these network dynamics to systemic vulnerabilities, we provide actionable insights to enhance risk management and inform macroprudential policy design.
(Under review)
Data, emerging as a new key factor of production following land, capital, labor, and technology, is profoundly transforming firms’ operating models and innovation paradigms. However, it remains unclear whether leveraging data can help firms fulfill their corporate social responsibility and mitigate environmental externalities. This paper investigates the effect of data technology utilization on corporate green innovation. Using a sample of Chinese non-financial listed firms from 2010 to 2023 and a text-based measure of utilization, we find strong and robust evidence that data technologies significantly improves the quality of firms’ green patent portfolios. The effect is more pronounced for pollution-heavy firms, non-state-owned enterprises, and firms in provinces with stronger intellectual property protection. Mechanism tests show that the utilization of data technology enhances green innovation quality by enabling more informed decision-making and more efficient resource allocation. Overall, our findings demonstrate the important role of data-driven technologies in promoting environmentally sustainable growth in the digital economy era.
(Available upon request)
(Under revision)
This paper analyzes the spillover effects of hostile takeovers on target firms’ product-market peers, identified using the text-based network industry classifications (TNIC). We use a target’s hostile takeover announcement as a source of exogenous variation in its peers’ control threats. We find that compared with a set of control firms not affected by the announcements, exposed firms—particularly peers of targets that are not subsequently acquired—provide balance sheets (but not income statements) with greater detailedness and experience growth in analyst coverage. However, the more refined balance sheet information does not improve analyst forecasts or market liquidity, which depend more on income statement information that is unaffected by the shock. Still, these firms’ idiosyncratic risk declines, suggesting that sophisticated investors reduce private information gathering as balance sheet transparency lowers information asymmetries about firms’ long-term prospects. The improved information environment is also associated with a significant increase in merger proposals received by these peers. Overall, our results suggest that hostile takeovers generate positive externalities for peer firms’ information environments: rather than altering financial policies, affected peers expand their balance sheets as a less costly way to reduce valuation uncertainty in future merger activities.
-- 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. He was a sharp economist, a dedicated 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.
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.
I present a simple model and empirical evidence of tunneling by large shareholders through private placement (PP) of public equity. Using data from Chinese stock markets where PP is the most prevailing way of refinancing, I show that controlling shareholders strategically benchmark issue prices against prices in periods of underperformance to expropriate minority shareholders through deep discounts. While the discounts incentivize participating blockholders to improve firm value by 3.38%, it leads to a 5.6% direct tunneling, resulting in a 2.22% value destruction. In contrast, earlier announcements of a PP plan, which precede the final issue day when the impact of price discount materializes, are associated with positive market reactions. A controlling shareholder is more likely to tunnel a well-performing firm, but refrains from doing so if a firm performs poorly. Using interaction between past performance and an indicator for blockholder's participation as an instrumental variable for the discount, I find that, on average, a 1% price discount causes 0.67% loss of an issuing firm's value.