This study extends the line of inquiry into the role of appearance in analyst performance, shifting the focus from innate features such as physical attractiveness to deliberate choices analysts make in presenting themselves within professional contexts. We find based on a sample of Chinese sell-side analysts that those with online photo IDs that present a more professional image exhibit a lower forecast accuracy, cover firms with high earnings predictability, issue more optimistic forecasts, herd to other analysts, release more favourable recommendations, and are less likely to become a star-analyst. Subsequent analysis reveals that experience and education further condition the relation between professionalism in appearance and analysts’ professional outcomes. Our evidence highlights that such choices can be interpreted through the lens of symbolic self-completion theory as informative about the quality of analysts’ output.

Using IPO suspensions unexpectedly adopted by Chinese regulators, we examine the impact of IPO activities on the performance of local private SMEs. SMEs in regions affected by IPO activities experience reduced ROA compared to those in unaffected regions, indicating a grabbing effect of local IPO activities. Channel tests reveal that IPO firms grab customers, financial capital, and labour from local SMEs. This effect is stronger when SMEs rely heavily on financial or human capital, when IPO firms hold stronger relative power, and when competition is intense. Our findings remind regulators of the unexpected negative externalities of local IPO activities.

Over the past few decades, the Chinese government has implemented a series of tax system reforms, namely, the Golden Tax Project (GTP), to use information technology to enhance tax administration. Taking advantage of the staggered implementation of phase III of the GTP from 2013 to 2016, we use a difference-in-differences design to examine whether strengthened tax enforcement impacts audit pricing. Using a sample of 2,751 companies listed on Chinese stock exchanges from 2007 to 2016, we test and find support for our hypothesis that the implementation of GTP III leads to a reduction in audit fees. We predict that GTP III decreases audit risks by improving corporate tax compliance and information transparency, which in turn reduces audit fees. Consistent with our prediction, the results show that the implementation of GTP III is associated with improved tax compliance (proxied by reduced tax avoidance and negative tax-related media coverage) and with improved information transparency (measured by reduced earnings management and analyst forecast errors). Our further analyses show that the effect of GTP III on audit pricing is more pronounced for companies in regions with higher fiscal pressure, worse tax compliance environment, and more severe corruption. Furthermore, the effect is strengthened when auditors are from a Big 4 firm, have more experience, and have experience in the high-tech industries. Moreover, business complexity, industry competition, and business uncertainty attenuate the effect of GTP III on audit pricing. Overall, this study suggests that tax enforcement has an important impact on auditor behavior, with benefits extending beyond enhanced tax compliance.

We examine how patent similarity with customers influences supplier firms' labor investment efficiency. Our findings show that higher patent similarity with customers negatively affects suppliers' labor investment efficiency, suggesting that more relationship-specific investments reduce suppliers' flexibility in adjusting labor capital. While shared technological profiles enhance knowledge transfer and collaboration, they also tie suppliers more closely to customer needs, limiting their ability to make efficient labor investment decisions. These effects are more pronounced in supplier firms with higher levels of innovation, a greater reliance on skilled labor, and customers who have more bargaining power. Further analyses reveal that the negative impact stems primarily from suppliers' underfiring, indicating a failure to address redundancy issues. This study contributes to the supply chain literature by introducing the novel perspective of supplier-customer patent similarity and adds to studies on the determinants of labor investment efficiency by incorporating the role of customers into the framework.

This research aims to address the controversy regarding the impact of restricted stock incentives (RSIs) on corporate innovation by clarifying the incentive targets and the stages of corporate innovation. Building on property rights theory and the knowledge-based theory of the firm, it identifies core employees' firm-specific knowledge investments and knowledge integration as key channels through which RSIs influence innovation implementation and, subsequently, innovation output. Furthermore, this research identifies how the equity incentive disparity between executives and core employees influences the effect of RSIs on corporate innovation. We collected data from 565 non-financial Chinese listed companies, all of which exclusively adopted RSIs. Data analysis utilized propensity score matching (PSM) and difference-in-differences (DiD) approaches. The results support our theoretical framework. The results are robust to PSM approach, instrumental variable test, model specification, and industry effects. Further analyses reveal that the positive impact of RSIs on corporate innovation is more significant in high-tech firms and non-state-owned enterprises. Internal monitoring (human resource management regulations) exhibits a U-shaped moderating effect, while strengthened external monitoring (analyst coverage) further enhances the innovation-promoting effect of RSIs.

Prior work suggests that financial analysts may gain an information advantage regarding visited firms through corporate site visits. We use a novel design to examine the impact of site visits on non-visited firms that are concurrently followed by the analysts. We propose a limited attention hypothesis predicting that site visits reduce forecast accuracy for non-visited firms. We find that analysts’ forecast accuracy for non-visited firms is negatively affected by site visits, and the negative effect is accentuated by the complexity of visited firms’ business operations and analysts’ busyness, supporting the limited attention hypothesis. Further analysis shows that site visits increase analysts’ optimistic bias towards non-visited firms. This study is the first to investigate non-visited firms and to reveal the unintended consequences of site visits, complementing prior studies that predominantly focus on visited firms.

Synopsis The research problem This study examines whether the environmental, social, and governance (ESG) disclosure mandate enacted in Hong Kong in 2016 has affected the ESG performance of Chinese firms cross-listed in Hong Kong. Motivation Empirical evidence on the real effects of ESG reporting, especially in emerging countries, remains relatively scant. Our study extends previous studies on the real effects of ESG reporting, which predominantly focused on developed countries, to an emerging country in a cross-listing setting. The test hypotheses Drawing on stakeholder theory, we hypothesized that the Hong Kong ESG disclosure mandate positively affects the ESG performance of cross-listed Chinese firms ([Formula: see text]). We also tested whether this effect is more pronounced for firms under greater pressure from the media, analysts, and customers ([Formula: see text], [Formula: see text], and [Formula: see text]), and for politically connected firms and non-SOEs ([Formula: see text] and [Formula: see text]), than for their counterparts. We further tested whether the Hong Kong ESG disclosure mandate positively affects the ESG performance of non-cross-listed Chinese firms that operate in the same industry or are located in the same city as cross-listed Chinese firms ([Formula: see text] and [Formula: see text]). Targeted population Our sample consists of 2,434 firm-year observations between 2011 and 2021 (excluding 2016). Adopted methodology The study employed a difference-in-differences approach along with propensity score matching. Analyses We performed tests to assess the validity of the parallel trend assumption and conducted a battery of robustness checks, including the use of different fixed effects, alternative samples, alternative measures of ESG performance, and different PSM approaches. Findings The results show that the Hong Kong ESG disclosure mandate has a positive effect on the ESG performance of cross-listed Chinese firms. This effect is particularly evident in the governance and environmental aspects of ESG, but not observed in the social dimension. Further, we found that firms under greater pressure from the media, analysts, and customers experience a stronger positive effect of the mandate. The effect is also more pronounced for politically connected firms and non-SOEs than for their counterparts. Additionally, non-cross-listed firms operating in the same industry or in the same city also show improvements in ESG performance following the mandate, suggesting a spillover effect. However, further analyses show that the ESG performance of cross-listed Chinese firms is still lower than that of local Hong Kong firms, which suggests that the mandate does not completely supplant the effects of the regulatory environment in mainland China.

This study empirically examines the impact of supply chain risks on the corporate strategy of the geographical distribution of suppliers, by employing text analysis to procure firm-level supply chain risk data. The findings indicate that, as supply chain risks intensify, firms are inclined to opt for geographically closer suppliers. Heterogeneity studies suggest that the effect of supply chain risks on the selection of geographically proximate suppliers is more pronounced within firms characterised by intense competition, low supplier concentration, low switching costs and in non-state-owned enterprises. Further analysis identifies that the supply chain risks, which drive strategies for firms to utilise a geographically proximate supplier distribution, stem from various sources. Each of these sources varies in its impact on a firm's strategies. Tests of economic consequences reveal that, in scenarios of heightened supply chain risks, firms' strategic geographic adjustments in supplier selection can favourably impact their supply chain management efficiency and operational risk.

We examine the role of taxable income in CEO compensation within the Chinese setting, where government influence is strong. We survey Chinese listed firms and find that 43% of the participating companies indicate their use of tax return information in executive compensation and turnover decisions. Large-sample tests show that CEO compensation rises as taxable income increases, and the effect of taxable income is more pronounced under greater government influence. Furthermore, the likelihood of CEO turnover decreases as taxable income increases, and this effect intensifies as government influence strengthens. Overall, our results suggest that strong government influence shapes the role of taxable income in CEO compensation and turnover decisions.

We examine the effect of media coverage of corporate environmental activities on corporate green innovation. Using a large sample of corporate news coverage over the period 2001-2019, we find a positive relationship between green media coverage and the green innovation of a corporation but a negative one between nongreen media coverage and green innovation. These results are robust to a battery of sensitivity tests, including the instrumental approach and propensity score matching method. We examine and verify two well-documented general channels through which the media influences corporate behaviors, namely, the financial constraint mitigation and external governance. More importantly, we examine channels specifically related to green media coverage and find that green media coverage strengthens the effect of pressure imposed by the government and the public for green innovation. Taken together, our results suggest that the media plays a distinctive role in green innovation through its particular attention to the environment.

We examine how social networks among political leaders shape state capacity. Using a dataset covering the work reports of the central and city governments in China, we find that city leaders with hometown connections to Politburo Standing Committee Members implement less conformed policies to the central government. Evidence supports the explanation that connected city leaders do not need to pander to the Central leaders for promotion and therefore use local information advantage to implement policies that fit local conditions. Conformity to the central government improves promotion probability, especially for unconnected city leaders, yet hurts local public goods provision and development.

This study examines how MNCs' foreign subsidiaries respond to internal demands from the parent and external demands from the host and home institutions to determine their environmental footprint. Using a sample of subsidiaries of U.S. MNCs operating in China, we find that subsidiary environmental footprint is negatively related to parent environmental performance. We also find that the impact of parent environmental performance on subsidiary environmental footprint is weakened by the levels of legal system development, collectivism, and political system development in regions where MNC subsidiaries operate and is heightened by the strength of social capital and stringency of environmental regulations in regions where MNC headquarters are located. Our findings have implications for executives of MNCs and policymakers.

We adopt a principal-principal perspective to examine whether comment letters for mergers and acquisitions (M&A) &A) protect shareholders, particularly minority shareholders, of acquiring firms in China, where investor protection is weak. This public enforcement tool has several features: (i) regulators provide detailed comments on various matters, (ii) various stakeholders are called upon to respond, and (iii) failure to adequately address the comments to the satisfaction of regulators results in M&A &A applications being rejected. Our main results show that M&A &A comment letters affect the outcome of M&A &A transactions by reducing acquisition premium and improving the fulfillment of performance commitment. Furthermore, this effect is more pronounced when the principal-principal conflict is more severe, as indicated by a greater divergence between cash flow rights and control rights, along with weaker monitoring by multiple large shareholders. Our results suggest that M&A &A comment letters, if used appropriately, effectively enhance investor protection in less developed economies. We contribute to the literature by providing new evidence of the effects of M&A &A comment letters in settings with weak investor protection.

Using the staggered establishment of environmental courts in China, we study the effect of environmental law enforcement on audit fees. We find that companies’ abnormal audit fees increase significantly after the establishment of a specialized environmental court strengthens environmental law enforcement. Our cross-sectional analyses show that the increase in abnormal audit fees is greater for companies with worse environmental performance and for those in heavily polluting industries. We then assess the channels through which environmental courts affect companies’ audit fees and find that the effect of the courts on fees is driven by both audit effort and audit risk and the establishment of a particular type of environmental court (an independent environmental adjudication division). Finally, our results reveal that public concern about environmental protection plays a substitutive role for environmental courts in affecting the increase in audit fees. Our findings suggest that environmental courts aimed at strengthening environmental laws and regulations alter firms’ and auditors’ behaviors and decisions, having unintended spillover effects on audit pricing.

Research has thus far suggested mixed effects of awards on the behavior of nonwinning firms. We draw from research on interorganizational spillover to study under what conditions state-sponsored awards motivate nonwinning firms to increase their efforts. We contend that, when government officials—an important institutional agent—are under competitive pressure from their own rivals to pursue the state goal, they are more motivated to promote the awards and trigger peer emulation, resulting in interorganizational spillover following the bestowal of awards. In turn, nonwinning firms with a greater need for government-controlled resources are more responsive to the spillover effect promoted by local officials. We test our theory with government awards to firms in China’s state-initiated poverty alleviation program. Analysis of Chinese publicly listed firms from 2016 to 2019 shows that following antipoverty award announcements, nonwinning firms improved their poverty alleviation effort more when their local government officials faced stronger competitive pressure in poverty reduction from their own close-rival officials. Notably, such spillover effects did not occur when local officials faced low competitive pressure. Our study contributes to research on interorganizational spillover and awards as well as how the state can encourage firms to tackle grand challenges.

Using a unique data set constructed from city governments’ work reports to capture cross-region policy similarity, we examine whether city Party Secretaries who were born in the same locality implement similar policies across different cities. We find that they implement divergent policies. A possible explanation we propose and provide evidence is that these leaders compete and cooperate with one another, to maximize the chance of promotion for each individual in the social group. The empirical findings and a quantitative model shed light on the optimal spatial allocation of local leaders with hometown ties, and its implications for regional inequality and economic welfare.

We investigate whether and how the textual characteristics of management discussion and analysis (MD&A) can affect bank loan contracting using a sample of 31,141 loan-firm-year observations in China. We document a strong negative relationship between a firm's MD&A readability and its cost of borrowing, in line with the argument that banks incorporate borrowers' information risk into pricing. Cross-sectional analyses suggest that the relation between MD&A readability and loan contract terms is less pronounced when borrowing firms are state-owned or have political connections, when firms are located in areas with more developed credit markets, and when lending banks are large shareholders.

PurposeCOVID-19 has forced audit firms to change the way they operate. One change has been to rely more on information technology (IT) and IT human capital to overcome COVID-19-related challenges. We refer to audit firms’ use of these two resources as audit firm informatization (AFI). It is important to understand whether AFI helps audit firms address challenges created by the pandemic. Thus, this study examines the impact of AFI on audit quality during the COVID-19 pandemic in China with a focus on IT human capital.Design/methodology/approachWe use a mixed-methods approach. First, we perform multivariate regression analyses on archival data. Specifically, we investigate the relationship between IT human capital and audit quality and the two mechanisms (i.e. improved efficiency and reduced audit risk) underlying the relationship. We also investigate how this relationship is moderated by features of clients, audit firms and individual auditors. Then we use interviews to corroborate the results of our regression analyses.FindingsOur analyses of archival data show that IT human capital positively affects audit quality through improved efficiency and reduced audit risk and that this positive impact is more pronounced for clients in non-manufacturing industries, those with a more opaque information environment, audit firms with greater industry coverage and individual auditors with less experience. Our interview data indicate that audit firms with more advanced AFI and a higher level of IT human capital in particular are less disrupted by the pandemic and are better able to use IT to address challenges associated with COVID-19. Furthermore, the results confirm that improved efficiency and reduced audit risk are the mechanisms through which AFI enhances audit quality. Finally, we identify issues associated with the use of IT.Originality/valueThis study is the first to investigate how IT human capital (and by extension AFI) influences audit quality in the context of the COVID-19 pandemic. Our findings should be of interest to practitioners and setters of auditing standards.