We study how local government fiscal stress affects corporate digital transformation in China. Using textual analysis of annual reports and validation against firms’ digital intangible assets, we build firm-level digitalization indices for Chinese listed firms from 2007 to 2020. For identification, we use two complementary strategies: a Bartik-style instrument for local fiscal stress, and a difference-in-differences design based on the 2014 local government debt management regulation. Both indicate that fiscal stress causally lowers firms’ digital adoption. The effect runs through two channels. First, fiscal stress cuts the public subsidies and local innovation support that firms rely on (a resource-constraint channel). Second, it heightens managerial risk aversion and short-termism, leading firms to postpone long-horizon digital projects (a strategic-choice channel). The adverse effect is weaker for state-owned enterprises and stronger when government capacity is low, widening the digital divide across regions. Overall, the fiscal health of local governments is a key external precondition for corporate technological upgrading.
This study examines when and how political connections translate into executive excess pay in China. We develop an institutional contingency framework in which the rent-extraction potential of political connections depends on executives' formal governance authority and is constrained by the local normative environment. Analyzing 98,913 executive–firm observations (2013–2019), we find that political connections systematically lead to higher excess pay. This effect is significantly amplified when connected executives hold board membership, which grants formal pay-setting authority, and is attenuated in regions with stronger religious norms. Further analysis reveals that the constraining effect of religious norms is more pronounced in non-state-owned enterprises (non-SOEs), whereas in state-owned enterprises (SOEs), political influence operates primarily through internal governance roles, particularly on the supervisory board. We also find that the connection premium intensifies during political turnover, and while excess pay generally harms firm performance, connected firms show some ability to mitigate this damage on accounting metrics—though the stock market reacts more negatively. Further analysis indicates that this normative constraint operates predominantly through community-level reputational pressure rather than the executives' personal internalization of religious values. Our findings shift the focus from whether political connections matter to when and how they matter, offering a nuanced, institutionally grounded view of the price of political power in an emerging economy.
This study examines whether structural financial opacity in emerging economies influences the trading environment of firms cross-listed on the New York Stock Exchange. Using high-frequency liquidity measures and variance-ratio statistics to capture price efficiency, we find that firms originating from more secretive jurisdictions exhibit wider spreads, greater information-based trading, and slower incorporation of information into prices. These effects are economically meaningful and robust across alternative microstructure measures, identification strategies, and fixed-effects specifications. Importantly, the impact of financial secrecy is attenuated in countries with stricter rule of law. To disentangle secrecy from broader governance quality, we isolate a structural component of secrecy by removing its shared variation with the rule of law and corruption control. The residual measure continues to predict market frictions, indicating that structural opacity represents a distinct trading friction rather than a proxy for weak institutions more generally. Sub-index evidence further identifies legal-entity transparency and financial-regulatory secrecy as key drivers. Overall, the results suggest that home-country institutional features continue to shape liquidity and price efficiency even after firms enter a highly regulated U.S. trading environment.
We examine the impact of short-selling pressure on firms' engagement in greenwashing. To establish a causal effect, we exploit the staggered deregulation of short selling in the Chinese stock market. Historically, short selling was prohibited in China, and this deregulation serves as a quasi-natural experiment that exogenously increases short selling pressure. We posit that short sellers act as external monitors, enhancing firms' information environment and reducing their incentives for greenwashing. Consistent with this prediction, we find that when a firm becomes eligible for short selling, its greenwashing activities significantly decrease. This effect is more pronounced in firms with less transparent information environments, stronger motivations for greenwashing, and better alignment between management and shareholder interests. Overall, our findings highlight the role of short sellers in disciplining greenwashing and enhancing transparency to stakeholders.
Online interactive platforms have become an important channel through which external stakeholders, especially retail investors, participate in corporate environmental governance. However, there is ongoing debate over whether retail investors, by voicing their opinions through these platforms, promote substantive corporate green transformation or merely facilitate greenwashing. To address this question, using Q&A texts from the “E-Interaction” and “Interactive Easy” platforms of China's A-share listed companies from 2010 to 2022, we examine how retail investors' green activism, reflected in expressions of environmental concern, affects corporate green transformation impression management and its underlying mechanisms. We find that retail investors' green activism significantly curbs corporate green transformation impression management, particularly firms' “more talk, less action” behavior. Heterogeneity analyses reveal that this effect is more pronounced in firms with higher agency costs, lower risk-taking capacity, greater information asymmetry, and weaker external audit oversight. Further analyses suggest that improved internal governance and enhanced external information disclosure serve as key mechanisms in reducing corporate impression management behavior. In addition, analyst attention functions as an external monitoring mechanism that reinforces the governance role of retail investor activism. Our findings provide insights into multi-stakeholder environmental governance and offer implications for corporate sustainability practices in China and other emerging economies.
This paper examines the relationship between finance ministers' early-life exposure to debt crises and political budget cycles in Africa using a novel dataset covering 24 countries over the period 1980–2022. We find that finance ministers who experienced debt crises during their formative years are associated with lower government expenditure during election years. We also document evidence consistent with a learning effect, as the association between elections and government expenditure weakens with greater early-life debt crisis exposure. While these relationships remain robust across a range of alternative specifications, they are attenuated once president fixed effects are introduced, suggesting that fiscal outcomes during election years likely reflect the combined influence of finance ministers and presidents. These findings highlight the importance of incorporating policymakers' formative experiences into our understanding of fiscal policy while recognizing the important role of presidential leadership and institutional constraints.
Natural disasters are intensifying due to climate change, posing significant risks to financial stability in emerging markets. This study examines the nonlinear relationship between the intensity of natural disasters and the stability of diversified listed commercial banks in emerging Asia. Using a dynamic panel threshold regression model on a dataset of ten emerging economies, we identify a statistically significant threshold at 1.311% of the affected population. Furthermore, we examine transmission channels by analyzing credit growth, profitability, and specific banking risks. The results reveal an inverted U-shaped pattern: low-intensity disasters are associated with contemporaneous increases in Z-scores, driven by reconstruction lending activity and temporarily elevated profitability. However, beyond this threshold, the impact turns negative as severe damages lead to escalated default risks and capital erosion. These findings suggest that diversified listed commercial banks in the sample are relatively resilient to lower-intensity disaster shocks, whereas higher-intensity disasters are associated with lower stability among these banks. Consequently, the estimated threshold may inform prudential monitoring of diversified listed commercial banks to safeguard this crucial segment of the banking sector.
We examine cross-maturity information transmission in Korea's treasury and mortgage-backed securities (MBS) markets by combining VAR-DCC-GARCH return dynamics with maturity-specific correlation-volume regressions. Higher short-maturity trading volume is associated with weaker return co-movement across maturities, whereas increased long-maturity trading volume tends to accompany stronger co-movement. Consistent with predictive spillovers from shorter to longer maturities, our results further show that the correlation-volume pattern remains visible after separating primary-dealer trading volume. Benchmark evidence from U.S. Treasury futures links liquidity concentration to correlation-volume patterns, while product-regression analyses document market-specific variation in lagged return alignment.
This paper investigates how regional culture shapes firms' CSR/ESG rating divergence. Exploiting the historical prevalence of rice (wheat) farming in China as an exogenous proxy for collectivist (individualistic) culture, we find that firms headquartered in collectivist regions exhibit significantly lower ESG rating divergence. This effect remains robust across multiple identification strategies and persists after addressing potential endogeneity concerns. We further show that collectivist culture reduces ESG rating disagreement by promoting ESG transparency and governance, reflected in increased voluntary ESG disclosure and enhanced internal control systems. Additional analyses reveal that this mitigating effect is more pronounced among firms facing weak external monitoring, consistent with collectivist culture substituting for formal governance oversight. Finally, quantile regression results indicate that the influence of collectivist culture intensifies where ESG rating divergence is most substantial, underscoring its role in disciplining corporate ESG behavior.
Artificial intelligence is increasingly central to China's pursuit of high-quality growth. Using a 2016–2023 firm-year panel linking job-posting data to financials, we test whether—and how—AI talent investment raises firm value. Baseline estimates indicate that greater AI talent investment is associated with higher firm value, and the result holds up under extensive robustness checks. Mechanism analyses indicate that deepening in AI talent (i) expands the stock of highly educated and highly skilled employees, (ii) raises R&D intensity and innovation output, and (iii) improves total factor productivity. Effects are stronger for high-tech and larger firms, and long-difference estimates imply persistence rather than transience. Overall, the findings provide consistent empirical evidence that building AI human capital is a value-enhancing strategy and offer conceptual support for policies that foster AI talent pipelines to sustain productivity-led growth.
This study utilizes data from investor interactive platforms (“Hudongyi” and “e Hudong”) in China and develops an “interest concern” indicator using textual analysis methods to examine whether and how retail investors' interest concern influences major shareholders' tunneling. The results reveal that retail investors' interest concern can inhibit major shareholders' tunneling by increasing the attention of institutional investors, analysts, and the media. Furthermore, the rate and speed of firm responses to investor inquiries can enhance this inhibitory effect. Additionally, the inhibitory effect is more evident in firms with low institutional investor shareholdings and those located in regions with weaker legal environments.
This paper analyzes the impact of expected US protectionist trade policies on the cross-section of emerging market exchange rates, using intraday data from US presidential TV debates from 1996 to 2016 as exogenous shocks. Currencies depreciate when the protectionist candidate wins the debate, with stronger effects for countries with more exports to the US. We investigate the cross-sectional heterogeneity in exchange rate responses using a comprehensive set of macroeconomic fundamentals and policy instruments. Large and segmented financial markets, as well as limited bilateral financial ties to the United States, help reduce exposure to protectionist shocks. Suggestive evidence indicates that substantial foreign exchange (FX) reserves, FX interventions, and active capital account management can mitigate adverse exchange rate effects in response to protectionist shocks. There are no significant differences across geographic regions in the exposure to protectionist shocks.
This paper studies how RMB depreciation affects corporate investment through liability-side currency mismatch arising from foreign currency debt. Using a panel of A-share and H-share listed Chinese real estate developers from 2014 to 2022, the evidence shows that firms with higher foreign currency debt significantly reduce investment during RMB depreciation episodes. Mechanism analyses show that this effect operates through higher financing cash outflows, tighter access to new credit, and increased earnings volatility. Moreover, the negative investment response is mainly driven by short-term, rather than long-term, foreign currency debt. In addition, the contractionary effect is weaker for firms that use derivative instruments for hedging, but stronger among state-owned firms and firms with weaker corporate governance. Overall, the findings highlight how liability-side currency mismatch amplifies the real effects of exchange rate movements and provide policy-relevant evidence on foreign currency debt risk in China's property developers.
The increasing interdependence between economies has amplified the transmission of extreme risks. This paper constructs a tail spillover network linking the real economy and financial system in China to examine how such risks propagate and evolve over time. Tail risks are estimated by using the time-varying peak-over-threshold (POT) model following Massacci (2017), and spillover dynamics are quantified through the connectedness framework of Diebold and Yilmaz (2012, 2014). Our analysis reveals that, on average, the largest spillovers originate from the output sector rather than the financial market. Further Granger causality tests indicate that tail risks in financial markets provide predictive linkages to tail risks in the real economy via investment and credit supply channels. In turn, tail risks in the real sector can feed back into the financial system by shaping consumer confidence and market expectations. Finally, we show that the proposed seven macro-financial tail spillover measures provide significant predictive power for future macroeconomic conditions, both in-sample and out-of-sample. These findings highlight the importance of monitoring cross-sector tail transmission within China's macro-financial system and provide useful insights for macroprudential policies aimed at mitigating systemic vulnerabilities.
This study systematically examines the contribution of multiple dimensions of financial development in anticipating currency and banking crises. We use a total of 34 emerging economies over a period of 1980 to 2017. The results suggest that machine learning algorithms offer a more effective alternative to traditional econometric method i.e., static logit model in predicting the crises. We use Shapley values to decompose model predictions and assess which financial indicators contribute most prominently to the prediction of currency and banking crises. Among financial development dimensions, low financial market access is the most influential predictor associated with currency crises. On the contrary, high financial market depth turns out to be the most significant predictor of banking crises in emerging economies. The results from this study reveal that only specific dimension of financial development possess greater predictive power for predicting currency and banking crises.
This study examines how climate risk exposure (CRE) reshapes firms' environmental technology innovation (ETI) strategies by distinguishing between mitigation and adaptation pathways. Using Chinese A-share listed firms from 2011 to 2023, we construct an objective weather-based measure of prefecture-level physical climate risk and identify mitigation and adaptation ETI through BERT-based semantic analysis of patent abstracts. We reveal a clear asymmetry: CRE suppresses mitigation ETI aimed at long-term emission reduction, but promotes adaptation ETI that helps firms cope with realized climate shocks and maintain operational resilience. Mechanism tests show that CRE inhibits mitigation ETI by reducing slack resources and organizational knowledge search, while stimulating adaptation ETI through improved information transparency and absorptive capacity. Environmental regulation, public environmental awareness, and marketization level moderate these effects by weakening the negative impact on mitigation ETI and strengthening the positive impact on adaptation ETI. The findings remain robust across alternative measures and identification checks. Consequence analyses show that both types of ETI reduce firm pollution emissions, while adaptation ETI also lowers operating risk. Overall, this study explains why firms facing rising physical climate risk shift from long-horizon decarbonization toward near-term resilience, and highlights the need for coordinated institutional and market support in emerging market green transitions.
The real effects of initial public offerings (IPOs) remain a central focus for both academics and regulators. While existing literature extensively documents how public flotations reshape corporate behaviors, their spillover effects on household financial decisions are largely overlooked. Leveraging micro-level data from the China Household Finance Survey (CHFS) spanning 2013 to 2019, this paper demonstrates that local IPO activity significantly increase household stock market participation. This promotional effect is heterogeneously more pronounced among urban, highly-educated, and wealthier or higher-income households. Mechanism analyses suggest that local IPOs stimulate household stock market participation by enhancing investor attention and improving stock market expectations.
This study examines the impact of regional integration on bank efficiency (BE) in the Asia-Pacific region. Using the implementation of the Regional Comprehensive Economic Partnership (RCEP) as an exogenous policy shock, we construct a difference-in-differences model based on panel data from 304 commercial banks in both RCEP and non-RCEP economies between 2018 and 2024. The results show that the RCEP framework significantly improves BE, and these findings remain robust across multiple checks. Mechanism analysis reveals that loan expansion and net interest margin are potential transmission channels through which RCEP enhances efficiency by promoting scale effects and reducing information asymmetry. Furthermore, heterogeneity analyses indicate that the efficiency-enhancing effect of RCEP is more pronounced in countries with lower institutional quality and in economies with faster trade growth and is positively moderated by bank size. These findings indicate a compensatory rather than an enhancement effect and provide evidence that regional trade agreements can improve financial institutional performance, highlighting the role of regional cooperation in strengthening financial resilience, particularly in more constrained environments.
This paper examines how systemic risk is transmitted across Islamic and conventional banks in four emerging dual-banking markets—Indonesia, Malaysia, Pakistan, and Türkiye—from 2015 to 2025. Using a Bayesian Spatial Autoregressive framework, it traces credit, profitability, and asset-efficiency stress through the banking network and introduces a Spillover Vulnerability Index (SVI) that ranks 115 banks by their systemic integration across successive crisis periods. The central finding is that the Islamic–conventional distinction is one of transmission regime rather than degree: during COVID-19, profitability stress spreads broadly across both bank types, consistent with macro-driven synchronisation, whereas credit stress diverges, with conventional banks propagating it through the network while Islamic banks remain contained or counter-cyclical. Network-driven contagion dominates only in Pakistan's conventional segment; elsewhere, and across all Islamic segments, stress reflects shared fundamentals rather than contagion. Islamic banks are less systemically integrated overall, but not uniformly, their profitability spillovers stay high even where credit channels are contained, qualifying the assumption of uniform institutional resilience. Core patterns are robust across alternative COVID-window definitions, though some recovery-phase dynamics are sensitive to that choice. The framework offers a differentiated diagnostic tool for macroprudential surveillance in dual-banking jurisdictions.
