This study investigates whether digital supervision technologies enhance the monitoring effectiveness of controlling shareholders in complex investment decisions. We exploit the staggered rollout of the SOEs Online Supervision System (SOSS) by China’s State-Owned Assets Supervision and Administration Commission (SASAC), the controlling shareholder of state-owned enterprises (SOEs), across its central and 31 provincial offices from 2018 to 2021. Following SOSS implementation, SOE transactions exhibit shorter deal duration, fewer regulatory inquiries, lower goodwill impairment, greater withdrawal of low-quality deals, and improved target quality. These improvements in deal review efficiency and screening effectiveness translate into stronger announcement returns and long-run performance. The performance effects are more pronounced for acquirers with stronger technological infrastructure, in transactions characterized by lower transparency and weaker governance, and when SASAC offices face tighter capacity constraints. Overall, digital technologies relaxes information-processing constraints and strengthens shareholder monitoring in complex investment settings.
We survey 153 empirical studies of family firms and document 192 operational definitions representing 25 distinct definition types. These definitions can be decomposed into five recurring, codable dimensions: ownership, management, board representation, embeddedness, and succession. We relate these dimensions to economic mechanisms including agency conflicts, residual control rights, transaction costs, and dynastic control. Alternative definitions select systematically different populations and yield materially different estimates of firm performance and innovation. Definition choice is largely unrelated to the research question, except in succession studies. Ownership thresholds track private enforcement of self-dealing rules, but not statutory shareholder rights or rule of law. We conclude that the family firm is a family of related constructs rather than a single latent construct. Definitions should therefore match the family-firm construct implied by the research question, and results should be reported across alternative classification rules.
This paper documents that firms experience a decline in innovation following the staggered adoption of salary history ban legislation (SHBs), which prohibits employers from asking job candidates about salary histories in the hiring process. We develop a theoretical model and hypothesize that SHBs impose higher informational asymmetries in the labor market and thus cause more severe adverse selection when employers attempt to hire inventors. Consistent with this hypothesis, we find that after SHBs, firms hire fewer inventors relative to their total workforce and, at the firm-year level, the newly hired inventor pool exhibits lower average innovation performance. Inventor-level tests further show that firms become more selective among the inventors they do hire. We also show that the adverse effect of SHBs on innovation is more pronounced for firms in states with stronger labor market protection. This paper outlines the unintended consequences of labor regulation and information restriction on corporate innovation.
Despite widespread optimism among regulators and market practitioners about corporate asset-backed securitization (ABS), its relationship with firm performance remains unclear. This study examines the association between corporate ABS and firm performance in China using a novel look-through approach to identify actual originators of ABS transactions. We document an inverted U-shaped relationship between corporate ABS scale and firm performance. Firm performance is positively associated with ABS issuance at low-to-moderate levels, but this association turns negative when issuance becomes excessive. Heterogeneity analyses show that this nonlinear relationship varies across ownership types and firm sizes and is more pronounced among non-state-owned and larger firms. Multiple analyses suggest that corporate ABS issuance in China functions less as pure risk transfer and more as debt-like financing, and the leverage-channel analysis further provides corroborative evidence that leverage helps explain the inverted U-shaped relationship between ABS issuance and firm performance. These findings advance our understanding of the relationship between corporate ABS and firm performance in China and offer practical implications for firms and regulators.
China's Communist revolution in the early 20th century left a prosocial cultural heritage in its historical revolutionary bases, consistent with the framework of group-level selection in cultural evolution. We document a robust positive association between local communist revolutionary heritage and corporate donations. This prosocial inclination is distinct from other historical influences, such as Confucian traditions or histories of peasant revolts, though it attenuates with local marketization. We employ propensity score matching, a neighboring-county test, a boundary-based spatial comparison, and an instrumental variable analysis to buttress a causal inference from the prosocial revolutionary heritage to corporate donations. Stakeholder demand and manager intrinsic preference emerge as parallel, mutually reinforcing channels underlining this relationship. Further analyses rule out alternative explanations, such as “grabbing hand” behavior, strategic motives, or political incentives. Collectively, these findings reveal a cultural imprint of Communist revolution history on corporate prosociality in contemporary China.
We examine how enhanced reporting mandates influence insider trading in the presence of information asymmetry among corporate insiders. We develop an insider trading model in which headquarters executives (HQEXs) are less informed about divisional profitability than divisional managers (DMs) and release public reports subject to external auditing. Our model shows that, when insiders have incentives to report optimistically, enhanced reporting mandates can promote DMs' share purchases based on information not shared with HQEXs. We provide supporting evidence from difference-in-differences analyses using a regulatory shock to segment reporting obligations, namely the adoption of SFAS 131. Our study offers new insights for policymakers.
We examine the effects of time-limited disclosure relief under the Jumpstart Our Business Startups (JOBS) Act of 2012. The Act grants newly public firms up to five years of exemptions, and our results suggest that the fixed duration of this relief, as much as its availability, shapes post-IPO behavior. Using an intention-to-treat design, we compare treated firms with smaller reporting companies whose exemptions are similar but carry no fixed expiry date. Equity issuance by treated firms increases significantly as the deadline nears while debt issuance declines, and cash reserves accumulate over the period. Capital expenditure increases relative to controls in the early post-IPO years, while R&D shows no differential response. As expiry approaches, the differential with the control group in internal investment weakens but cash-financed acquisitions accelerate. This shift in investment composition coincides with deteriorating operating performance and declining market valuations relative to IPO levels. Our post-expiry analysis reveals an abrupt reversal in acquisition activity upon transition to full disclosure while internal investment remains unchanged, supporting the argument that pre-expiry behavior was driven by the regulatory timeline rather than natural firm maturation. We conclude that the duration of regulatory relief is as important as its scope in shaping corporate behavior, and that time-limited exemptions from mandatory disclosure can induce anticipatory firm responses that work against the policy's intended objectives.
Overconfident CEOs overestimate their ability to generate value. We investigate how this affects divestiture activity and whether it moderates a CEO's investment lifecycle. We hypothesize and find that overconfident CEOs are less likely to divest units and their divestment decisions are less sensitive to career lifecycle concerns. In addition, after a divestiture overconfident CEOs spend more on capital expenditures (Capex) and acquisitions than other CEOs. Overall, our results suggest that overconfident CEOs prefer to retain units and divest largely to maintain an investment trajectory. Our results further highlight the important role behavioral traits such as overconfidence play in corporate decision-making.
We examine non-underwritten placements of seasoned equity made by publicly traded firms and contrast non-intermediated and intermediated deals. We posit that agent-assisted, intermediated placements indicate relative weakness, whereas healthier firms place their equity directly with investors. Indeed, the market reaction to announcements of non-intermediated (intermediated) placements of equity is significantly positive (negative). Our findings are robust to selection and simultaneity checks. On average, non-intermediated offerings are placed at a premium and exhibit significantly better long-run stock performance. We also examine the role of the information environment provided by analysts and the coverage by agent-affiliated analysts in private placements.
This research examines the relationship between co-opted boards and firms' anti-takeover provisions (ATPs). Analyzing 5585 US firm-year observations for the period 2012–2022, we document a positive relationship between co-opted boards and ATPs. We further illustrate that the positive relationship is stronger in firms that exhibit subpar performance and compensate senior executives and directors more than the industry average. Furthermore, our research finds that good governance, board and executive gender diversity, gender equality, and board cultural diversity moderate the positive relationship between co-opted boards and ATPs. Our results remain robust across a battery of tests. The findings of this research have important implications for corporate boards and managers. The study contributes to the mainstream agency theory by demonstrating that co-opted boards exacerbate firms' agency problems by blocking the potential of external disciplinary mechanisms.
We investigate whether short sellers process a specific type of public information: heterogeneity in analysts’ individual EPS forecasts. We find that short-selling activity increases after earnings announcements when firms miss the key analyst forecast beyond missing the analyst consensus forecast. Moreover, higher short-selling activity following key analyst forecast misses predicts lower subsequent returns, consistent with profitable trading. A quasi-experimental design based on exogenous reductions in key analyst coverage further supports our interpretation. Overall, our results highlight a specific channel through which short sellers obtain an informational advantage and improve our understanding of the public signals they process.
The Inevitable Disclosure Doctrine (“IDD”) protects trade secrets and intellectual property but restricts labor mobility by limiting a worker's ability to take jobs at competing firms. Prior literature presents evidence of a causal relationship between the adoption of the IDD and earnings manipulation, as executives have less of a need to demonstrate superior performance to attract and retain employees. At the same time, however, the IDD traps executives in their roles, increasing their personal incentive to manage earnings defensively. We present evidence that executive incentives mitigate the desire to reduce earnings management in firms with lower knowledge-worker turnover after adopting the IDD, suggesting a more nuanced understanding of the relation between labor market mobility and accounting disclosure than has previously been documented.
This study examines how passive institutional investors reshape corporate venture capital (CVC) investment decisions. We find that increases in passive institutional ownership lead firms to cut back CVC investments in non-core, high-risk, and low-quality ventures, with the reduction being more pronounced among firms subject to more severe managerial agency problems. Futhermore, the reduction of CVC investments leads to higher short-term announcement returns and improved long-term operating and innovation performance. The findings suggest that passive institutional investors mitigate managerial agency problems and improve innovation by disciplining CVC investment decisions.
Existing contingent convertible bonds (CoCos) have several drawbacks for investors and issuers. This paper introduces the CCCR, a hybrid security that improves upon CoCos by adding an automatic share repurchase mechanism, requiring the company to repurchase shares if its financial condition worsens after the conversion of contingent debt securities into equity. We develop a structural model based on Leland’s framework to analyze a firm’s optimal capital structure, which includes equity, CCCR, and a straight debt. The model endogenously determines the CCCR’s features, and we derive pricing formulas for the firm’s liabilities. To ensure applicability, we derive a condition and corresponding minimum conversion ratio ensuring a one-to-one mapping between equity value and firm asset value. Our analysis of credit spreads, asset substitution, and other key financial metrics shows that, compared to alternative financing options, capital structures incorporating CCCR offer significant advantages for investors while imposing minimal additional costs on issuing firms, establishing this new security as a rational and viable form of contingent capital.
We develop a real options model to examine the determinants of patent dispute outcomes between an incumbent firm and an allegedly infringing challenger. By analyzing their dynamic strategic interactions, we find that the gain-to-loss ratio, which reflects the degree of horizontal product differentiation, plays a crucial role in determining settlement feasibility, timing, and royalty terms. A lower gain-to-loss ratio, which indicates less differentiated products and more intense cannibalization, as well as higher market volatility, and a larger divergence in the firms’ financial incentives to continue litigation (ICL) reduce the likelihood of settlement. Our findings illustrate how product market differentiation, market uncertainty, and legal cost-allocation rules collectively determine whether firms accommodate entry through settlement or seek to preserve monopoly structures through litigation.
This paper investigates how peer firms' Corporate Social Responsibility (CSR)-related incidents influence the corporate investment efficiency of non-incident firms. Using a sample of U.S. firms from 2007 to 2021, we document a significant increase in investment-Tobin's Q sensitivity following negative peer events, thereby improving investment efficiency. We identify three non-mutually exclusive channels. First, the effect is stronger among firms with higher analyst coverage, greater stock trading volume, and closer product-market proximity to the incident firm, consistent with the notion of heightened external scrutiny. Second, peer incidents serve as informational shocks that enhance managerial learning from external signals, particularly when firms operate in competitive industries, face high product-market uncertainty, or have more informative stock prices. Furthermore, we find that the performance of focal firms deteriorates following peer incidents and that efficiency gains are greater among firms that were previously overinvesting. Taken together, these findings suggest that peer CSR scandals act as disciplining and learning events that improve investment behavior across the industry.
We investigate how trust shocks affect innovation networks through an incomplete contracting framework. Using academic misconduct cases in China (2015-2021) as an identification strategy, we construct a comprehensive dataset combining patent activities and venture capital investments. We document three key findings. First, academic misconduct triggers persistent declines in university-industry collaboration, reducing both joint patents and citations to university research. Second, affected firms strategically shift toward inter-firm R&D alliances. Third, trust shocks propagate to capital markets, with venture capitalists reducing investments in firms previously linked to universities involved in misconduct. Our findings highlight trust as an irreplaceable mechanism in innovation governance and demonstrate how trust breakdowns reconfigure contractual relationships and resource allocation in innovation networks.
Firms headquartered in two different states that share a high degree of overlap in their age-cohort structures exhibit stock return comovement. Building on prior evidence that generational cohorts shape investors' investment preferences, we argue that cross-state age demographic similarities expand investor bases across states and play a moderator role in the effect of fundamental factors on comovement, as age-based comovement is amplified when states are subject to common shocks that influence their fundamentals, such as industry similarity and geographical proximity. We also demonstrate that age-based comovement is partially driven by non-fundamental factors. First, firms located in states with high age overlap with all other states are mispriced and experience return reversion. Next, firms with a higher (lower) proportion of similarly aged retail (institutional) traders, who are more likely to be subject to sentiment and to exhibit correlated trading behavior disconnected from fundamentals, are likely to experience age-based comovement. Lastly, state pairs with similar age demographics and high inter-migration exhibit comovement, serving as evidence that familiarity-based trading partially drives age-related comovement.
We study the impact of stricter and more harmonized banking regulation along the income distribution using household survey data for 25 EU countries. Exploiting country-level heterogeneity in the implementation of European Banking Union directives allows us to control for confounders and identify effects. Our results show that these regulatory reforms aimed at increasing financial system resilience affect households heterogeneously and result in a widening of the income distribution. These results are dependent on a country's ex-ante regulatory stringency, and more pronounced in countries with stronger bank dependence. Furthermore, we find that more stringent regulation reduces income growth for low-income households primarily due to exits from employment, whereas affluent households tend to experience increased growth rates for employee and self-employed income.
