We study the impact of political relations on media coverage. Using a sample of 3,290 American Depository Receipts (ADRs) from 45 countries, we find that deteriorating political relations between the US and an ADR firm's home country induce negative coverage by the US media of the ADR firm. To alleviate endogeneity, we adopt France's and Germany's opposition to the Iraq War and the inauguration of the US president as two shocks to bilateral political relations between the US and foreign countries. In placebo tests, we show no negative effect of political relations on ADR firms’ press releases or non-US media coverage. We further document the three economic mechanisms underlying the impact of political relations on media coverage: US journalists’ country sentiment, a country's popularity among US readers, and the US media's political beliefs. Finally, we document two consequences of negative coverage by the US media: investors respond less to negative news of firms from countries with deteriorating political relations with the US, and negative coverage leads to a greater likelihood of firms terminating their ADRs.

This paper investigates the impact of higher education on corporate innovation. To establish causality, we exploit a policy-induced exogenous shock in the supply of Chinese college-educated labor starting in 2003. Using a difference-in-differences approach, we find that Chinese firms in skilled industries generate better innovation outcomes as measured by patents and citations than those in unskilled industries. This effect is more pronounced among firms headquartered in a province with more science and engineering college graduates, young firms that are more likely to hire young graduates, and firms located near universities. Moreover, higher education expansion increases a firm's innovative human capital in terms of the number of educated employees and inventors. Finally, we show that technological innovation is a mechanism through which higher education affects productivity growth and, thus, the economy.

We investigate whether the media plays a role in corporate governance by disseminating news. Using a comprehensive data set of corporate and insider news coverage for the 2001–2012 period, we show that the media reduces insiders’ future trading profits by disseminating news on prior insiders’ trades available from regulatory filings. We find support for three economic mechanisms underlying the disciplining effect of news dissemination: the reduction of information asymmetry, concerns regarding litigation risk, and the impact on insiders’ personal wealth and reputation. Our findings provide new insights into the real effect of news dissemination.

This paper investigates whether foreign institutional investors affect the global convergence of financial reporting practices. Using several measures of reporting convergence, we show that U.S. institutional ownership is positively associated with subsequent changes in emerging market firms’ accounting comparability to their U.S. industry peers. We identify this association using an instrumental variable approach that exploits exogenous variation in U.S. institutional investment generated by the JGTRRA Act of 2003. Further, we provide evidence of a specific mechanism—the switch to a Big Four audit firm—through which U.S. institutional investors affect reporting convergence. Finally, we show that, for emerging market firms, an increase in comparability to U.S. firms is associated with an improvement in the properties of foreign analysts’ forecasts.

This study examines the empirical controversy over the pricing effect of the Easley, Hvidkjaer, and O׳Hara (2002) probability of information-based trading, PIN, on a sample of 30,095 firms from 47 countries worldwide. Contrary to the empirical evidence of Easley, Hvidkjaer, and O׳Hara, but consistent with that of Duarte and Young (2009), we do not find that PIN exhibits a positive effect on a cross section of expected stock returns in international markets. Alternative information-based trading measures also display no effect on expected stock returns, corroborating our finding that information risk proxied by PIN, in general, has no pricing effect in world markets.

We study how political capture affects the corporate governance role of the media. Relying on a unique media market in China that is characterized by the prevalence of both state-controlled and market-oriented media, we manually construct a comprehensive financial news sample containing 80,008 articles during the 2004–2010 period and provide evidence that negative coverage by the market-oriented media significantly increases the chance of forced top executive turnover, whereas similar coverage by the state-controlled media has no such impact. A multi-pronged approach that includes an instrumental variable test, an exogenous event, firm fixed effects, and change-in-change specifications provides positive evidence of the casual link. Further analysis reveals that the disciplinary effect of the market-oriented media is stronger for firms that are less likely to be influenced by political capture, such as non-state-owned firms or firms located in provinces with good institutions.

We hypothesize that short selling has a disciplining role vis-à-vis firm managers that forces them to reduce earnings management. Using firm-level short-selling data for thirty-three countries collected over a sample period from 2002 to 2009, we document a significantly negative relationship between the threat of short selling and earnings management. Tests based on instrumental variable and exogenous regulatory experiments offer evidence of a causal link between short selling and earnings management. Our findings suggest that short selling functions as an external governance mechanism to discipline managers.

We examine whether the immigration status of entrepreneurs is a concern for creditors when extending trade credit. Utilizing the disclosure of overseas residence rights of controlling shareholders in China, we show that overseas residence rights negatively affect firms' ability to obtain trade credit. This negative association is attenuated if the overseas jurisdiction has an extradition treaty with China. Our results are robust to the introduction of the Hong Kong national security law as a source of exogenous variation in the boundary of domestic law. The decrease in trade credit provision is more pronounced in firms that are perceived as less trustworthy (i.e., with less social trust or higher expropriation risk). Our results offer new insights into how the reach of law across borders can affect firms' financing activities.

This article examines whether foreign investor heterogeneity plays a role in stock liquidity in a sample of 27,828 firms from thirty-nine countries worldwide. Foreign direct ownership is negatively associated with stock liquidity, while foreign portfolio ownership is positively associated with stock liquidity. Consistent with theoretical predictions, foreign ownership explains stock liquidity through both trading activity and information channels. The value-enhancing benefits of foreign direct investors’ monitoring efforts outweigh their liquidity costs and high adverse selection premium. However, the positive impact of foreign portfolio ownership on firm performance becomes negative and is not robustly significant after controlling for liquidity.