We document the importance of political promotion incentives for supervisors in banking supervision. Utilizing the merger of the China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC) in 2018, we explore the actions of head of the CBRC's regional offices. We find that the increased political promotion incentives are associated with higher frequency, greater amount, and greater severity of penalties in regional banking supervision. The enhanced supervision is more remarkable when the head of the CBRC's regional offices has a higher political rank. After the merger of the two commissions, the regional banking supervision is significantly weakened with the disappearance of political promotion incentives. Furthermore, these enhanced regional supervision triggered by the merger event reduce bank risk. Our findings show that the increased political promotion incentives affect the supervisor's activities and improve the supervision effectiveness.

Corporate managers overextrapolate past earnings in their earnings guidance, and this behavior is robust after including extensive controls, such as expectation management, earnings management, and overconfidence. The degree of overextrapolation is driven by the persistence of the underlying earnings process and other factors that affect representativeness heuristics, including trend, salience, and volatility. Experience and value diversity among corporate managers help mitigate this bias, whereas demographic diversity does not. Using the Tax Cuts and Jobs Act of 2017, we provide causal evidence that managers overextrapolate past earnings. This paper was accepted by Camelia Kuhnen, finance. Supplemental Material: The internet appendix and data files are available at https://doi.org/10.1287/mnsc.2023.00901 .