This paper extends the discussion on the predictive role of bond market information for the stock market to a novel context by proposing a new predictor of stock market bubbles for the United States (US), namely the implied skewness of the Treasury yield. Using daily data from January 1988 to April 2025, we first implement the Multi-Scale Log-Period Power Law Confidence Indicator (MS-LPPLS-CI) framework to detect positive and negative bubbles at the short-, medium- and long-term. Next, employing a nonparametric causality-in-quantiles framework, we show that bond market signals inferred from the implied skewness of the Treasury yield carry significant predictive content for US and international stock market bubbles. While the predictive effect of Treasury yield skewness is found to be asymmetric across the short-, medium-, and long-term of the positive and negative bubble indicators, the strongest influence is observed at the lowest conditional quantiles of the bubble indicators, suggesting that bond market information captured by forward-looking skewness of interest rate implied by Treasury options carries significant in-sample predictive content for bubble formation and crash risk in the stock market. These results hold when considering the remaining G7 and BRICS countries. They provide support for the determinant role of interest rate signals by the Fed over risky asset dynamics in global stock markets, which can be used by investors and policy authorities to have timely insights on imminent boom-bust cycles.
While there is growing consensus that the net-zero transition creates financial risks, a key oversight has emerged: existing research predominantly focuses on direct carbon pricing effects while overlooking the complex transmission of stranded asset risks through the financial system. This oversight is particularly concerning as financial stability could be threatened by both aggressive climate policies and delayed action. We address this theoretical gap by developing a novel six-sector DSGE model that captures two critical mechanisms: (i) the endogenous formation of stranded assets through the interaction between carbon policy expectations and asset valuations, and (ii) the amplification of transition risks through financial intermediation channels. The model uniquely incorporates both quantity-based and intensity-based carbon controls, alongside green monetary policy tools, allowing us to examine policy coordination effects that have been largely neglected in previous literature. Our findings challenge the conventional wisdom that stricter carbon policies necessarily lead to greater financial instability. We demonstrate that intensity-based controls can stimulate output through scale effects, partially offsetting the contractionary impact of quantity controls. Moreover, we show that the effectiveness of green monetary policies that embed prudent mechanisms of green incentives and brown penalties critically depends on their coordination with carbon policies. These results suggest that policymakers should move beyond the simple “policy stringency-financial risk” trade-off and focus on designing coordinated policy packages that can facilitate an orderly transition while preserving financial stability.
This study examines whether green mutual funds in China engage in greenwashing by investing in firms with high Environmental, Social, and Governance (ESG) scores but substantial carbon emissions. We find that Principles for Responsible Investment (PRI) signatories attract more fund inflows and show higher portfolio ESG scores, but their carbon emissions remain unchanged. Both active and index-based green funds exhibit high ESG scores but high carbon emissions. Further analysis indicates that high‑carbon firms exploit voluntary carbon disclosure to inflate ESG ratings, while funds' mechanical reliance on these scores transmits corporate greenwashing to the fund level, particularly among funds with limited capacity and resources. Moreover, greater public climate awareness and improved carbon data availability promote genuine decarbonization. Overall, our findings reveal a transmission mechanism from corporate greenwashing to fund greenwashing, implying that passive ESG investing based on commercial ESG scores may inadvertently subsidize carbon emissions.
This study investigates the impact of corporate environmental, social, and governance (ESG) ratings on firm-level biodiversity risk exposure using a sample of 26,363 Chinese A-share listed firms from 2009 to 2023. Results show that improvements in ESG ratings significantly reduce firms' biodiversity risk exposure. The finding remains significant after a series of robustness checks and endogeneity treatments. Mechanism analysis reveals that improvements in ESG ratings primarily mitigate biodiversity risk exposure by addressing agency problems, enhancing external attention, and alleviating financial constraints. Heterogeneity analysis shows that the effect of ESG ratings in reducing biodiversity risk exposure is greater among firms with stronger corporate governance and higher market attention, as well as among state-owned enterprises or politically connected firms. Our findings contribute to the growing literature on sustainable finance by demonstrating that ESG ratings are an effective risk management tool for mitigating biodiversity risks.
The consequences of digital financial inclusion have been widely discussed in the literature especially with regard to individual financial behavior and financial well-being. The advantage of digital financial services goes beyond purely pecuniary issues as it is regarded to be crucial for human development. This paper aims to investigate the association between digital financial inclusion and health human capital, and whether the relationship is moderated by health inequality. Using the dataset of China Household Finance Survey (CHFS), and the Peking University Digital Financial Inclusion Index of China (PKU-DFIIC), this paper finds a significantly positive association between digital financial inclusion and health human capital accumulation. Mechanism analysis indicates that digital financial inclusion enhances health human capital by increasing health investment and health insurance coverage, and reducing psychological pressure caused by over-indebtedness. Heterogeneity analysis suggests that the effects of digital financial inclusion are more pronounced among low-income people, the elderly, households with lower level of education and financial literacy, and households with less access to traditional financial services. The moderating effect test also exhibits that digital financial inclusion remarkably mitigates the negative impact of health inequality on health outcomes.
The growing focus on corporate sustainability performance has raised questions about whether firms' environmental, social, and governance (ESG) scores are affecting shareholder payouts. Drawing on agency and signaling theories, we examine how ESG performance influences firms' dividend policies, as reflected in payout, cash, common, and preferred dividends. Using 51,032 firm-year observations from 7579 firms across several countries, we find that ESG performance is positively associated with firms' dividend policies, whereas preferred dividends exhibit a contrasting effect. Moreover, firms' dividend policies improve as ESG performance strengthens through the Tobin's Q and return on assets channels. From a theoretical perspective, this study supports the view that firms use dividends as signals of financial stability and commitment to sustainable practices. The results remain robust across all ESG pillars, with the environmental pillar exerting the strongest effect. Several regions also exhibit consistent patterns. From a managerial perspective, investing in ESG performance may enhance financial performance and support higher dividend distributions. Thus, shareholders benefit from the alignment between sustainability and financial returns, supporting Sustainable Development Goal 17, which emphasizes partnerships for goals, as dividend payouts reflect a long-term commitment to stakeholder engagement.
We explore the value premium in China's Shanghai-A and Shenzhen-A stock markets, and how to exploit it using a new investor sentiment index. Using data from 2000 to 2021, we evaluate book to market (BM), earnings to price (EP) and sales to price (SP) factors. Consistent with evidence from other countries, BM generates a stronger value premium among small-cap stocks, whereas EP generates a larger value premium among large-cap stocks. Using partial least squares (PLS), we construct a novel value factor that outperforms all other value factors in terms of higher portfolio returns. We also explore the relationship between the value premium and investor sentiment. In China, unlike most developed countries, value stocks outperform growth stocks in bull markets. Our results suggest that long-term investing in value stocks is more (less) profitable when market sentiment is lower (higher).
We propose a dynamic investment and risk management model for financially constrained enterprises under model uncertainty. The firm can reduce their productivity risks through financial hedging (e.g., using options or futures contracts). This paper considers the hedging strategy of enterprises using market index futures. Based on the dynamic principal-agent framework (Ling, Miao, & Wang, 2021), we assume that the proportion of market index futures held by the entrepreneur is a component of their compensation scheme and construct a novel principal-agent model with a financial hedging strategy. This model explores whether financial hedging helps alleviate the risk-sharing problems affecting enterprises under model uncertainty. The results indicate that model uncertainty has a more significant and intricate impact on robust contracts than that of frictional hedging. Interestingly, model uncertainty exerts a nonlinear influence on both the firm's investment and incentive levels, whereas financial hedging positively impacts these levels. Parameter sensitivity analysis shows that financial hedging almost fails to change how uncertainty parameters influence contract design. In a word, this hedging strategy can effectively mitigate the impact of model uncertainty and achieve optimal firm risk sharing.
This study examines the impact of customer's innovation on the supply chain relationship, arguing that a customer's innovation activities amplify its financial risks and alter its operations and products, which may induce the customer and supplier to reduce their dependence on one another. I predict a negative effect of customers' innovation on supply chain relationships. Consistent with this hypothesis, the findings reveal that customers' innovation weakens the supply chain relationship between the customer and existing suppliers. Moreover, the negative effect of customers' innovation on its relationship with an existing supplier is more pronounced when the supplier has smaller firm size, a more inflexible operational environment, and higher financial instability; the customer has a smaller firm size, experiences higher financial distress, and is more innovative; the supplier and customer exhibit less technological alignment; and supplier and customer switching costs are lower. Overall, this study contributes to the existing literature on the effect of corporate investment decisions on supply chain relationships.
Using panel data of 2821 Chinese listed firms from 2007 to 2019, we investigate how financial access affects corporate climate risk disclosure (CRD) and the underlying mechanisms. We find that financial access enhances CRD, with this effect attributable to alleviating financing constraints, which in turn foster technological innovation and promote social responsibility. Further, the effect of financial access on CRD is more pronounced for polluting corporations and those led by environmentally experienced CEOs. Notably, enhanced financial access inhibits chronic risk disclosure, unlike its effect on acute and transit risks. Improved CRD is further found to enhance corporate governance and carbon reduction performance. Results highlight the pro-social value of financial services and an important link between the quality of financial services and corporate transparency.
This study examines whether CFO gender is associated with firms' trade credit policy (proxied by accounts payable). We find that firms with female CFOs have more accounts payable. We also find that the positive relationship between female CFOs and accounts payable is stronger in firms with lower firm risk. Further analysis shows that male-to-female CFO transitions are associated with higher accounts payable. Our results are robust to endogeneity concerns, alternative measures of trade credit, alternative estimation specifications, an alternative clustering specification, and the impact of external events. Our study extends the literature by clarifying how female CFOs affect trade credit decisions. Our empirical evidence can also help stakeholders better understand firms' trade credit policy in relation to CFO gender.
This paper investigates the relationship between responsible investors and corporate green innovation using a sample of U.S.-listed firms. We present novel evidence of a positive association between responsible institutional ownership and firm-level green innovation, a finding that remains robust after addressing potential endogeneity concerns. Importantly, we demonstrate that identifying responsible investors based on their actual portfolio ESG footprints yields substantially different inferences from relying on self-identification through UNPRI signatories. This distinction reveals heterogeneous mechanisms through which responsible investors influence corporate environmental outcomes and offers new insights into the theoretical frameworks linking ESG preferences to real economic activity.
Based on the data of Chinese A-share listed manufacturing companies from 2011 to 2022, this study probes the impact of digital finance on the resilience of industrial and supply chains, as well as its underlying mechanisms, and unveils the moderating effect of data assetization. The mechanism tests show that digital finance enhances the resilience of industrial and supply chains through three channels: reducing financial risks, increasing R&D investment, and alleviating information asymmetry. Heterogeneity analysis reveals that digital finance has a greater effect on improving the resilience of industrial and supply chains for enterprises that have green M&A behavior, do not have centralized behavior, and are located in regions with strong financial supervision. Furthermore, additional analysis shows that there exists a significant inverted U-shaped nonlinear relationship between digital finance and the resilience of industrial and supply chains. Data assetization can strengthen the enabling effect of digital finance. Consequently, the government should comprehensively promote the development of digital finance and the process of data assetization, rationally expand the enabling scope of digital finance, and fully unleash its potential in enhancing the resilience of industrial and supply chains.
We utilize a sample of listed firms on the Chinese market from 2011 to 2021 to investigate the impact of female CEOs on stock market manipulation, employing high-frequency trading data. Our findings indicate that female CEOs are significantly negatively associated with stock market manipulation, and this negative association is more pronounced among firms with less manipulation history, lower turnover and leverage, CSI 300 constituent stocks, private firms, and firms located in regions with higher levels of financial regulatory surveillance. Mechanism tests suggest that female CEOs can mitigate stock market manipulation by optimizing the firm internal and external information environment. This study offers valuable insights for policymakers who consider gender diversity reform as a strategy against market manipulation.
Diagnostic expectation, a behavioral framework in which agents overweight recent news based on its representativeness, typically assumes that investors overreact to information. However, this literature largely overlooks the possibility of investor underreaction. This paper generalizes the diagnostic expectations model to incorporate both over- and underreaction, demonstrating that standard empirical tests of news processing can be misleading. By building a state-space model of firm earnings, we derive closed-form expressions that link past growth, forecast errors, and stock returns. We highlight three key theoretical results. First, high fundamental persistence with overreaction is observationally equivalent to low persistence with underreaction in standard Coibion-Gorodnichenko regressions. Second, inferring the true direction of investor reaction requires joint identification, as key covariances change sign depending on the interaction between persistence and diagnostic distortion. Third, pricing implications from the equity term structure model show that return predictability mirrors forecast error dynamics identically across both regimes. Empirical evidence from the Korean stock market, an environment exhibiting low persistence and structural underreaction, supports these findings.
This study examines whether social trust affects information communication between managers and external investors, focusing on dividend smoothing as a firm-level commitment to future payouts. From an agency perspective, smoothing lowers agency costs and depends on investor confidence in managers' willingness to deliver future payouts. A signaling perspective similarly suggests that trust enhances how informative dividend commitments are. While both channels can be influenced by social trust, signaling offers a clearer cross-country implication. In high-trust environments, investors tend to view dividend commitments as credible, whereas in low-trust settings, skepticism reduces their signaling value. Consistent with this logic, using a large cross-country sample, we find that firms in high-trust countries are more likely to engage in dividend smoothing. We further show that the positive relationship between dividend smoothing and firm value reported in prior research is driven primarily by firms in more trusting countries. Overall, this study enhances understanding of how social trust shapes dividend smoothing as a distinct mechanism of information communication on a global scale.
Green finance plays an important role in supporting environmentally sustainable investment and reducing climate-related financial risks. In this context, understanding its contribution to the energy transition is important. However, the spatial effects of green finance have received limited attention. Hence, this paper examines 29 Chinese provinces over the period 2003-2019 and applies a Dynamic Spatial Durbin Model (DSDM) to estimate the short- and long-run direct and indirect effects of green finance on energy transition outcomes. Our results indicate that green finance significantly promotes clean energy adoption within provinces and generates positive spillover effects in neighboring regions. Moreover, the estimated impacts are stronger in the long run than in the short run, suggesting that the benefits of green finance accumulate over time and diffuse spatially. Industrial structure shows a positive association with the energy transition. By contrast, government support, urbanization, gross regional product, and financial infrastructure display negative effects. Our findings highlight the importance of regionally coordinated green finance policies and sustained financial support to achieve lasting improvements in clean energy adoption. They also suggest that policy efforts should prioritize long-term strategies and interprovincial cooperation to maximize the contribution of green finance to the energy transition.
