China has been adopting a “mercantilist” policy by lavishing massive government subsidies on Chinese firms. Using hand-collected subsidy data on Chinese listed companies, we find that firms receiving more subsidies tend to have a lower cost of debt. However, such firms fail to have superior financial performance. Instead, firms with more subsidies tend to be overstaffed, which demonstrates higher social performance. These results are mainly driven by non-tax-based subsidies rather than tax-based subsidies. Overall, our results suggest that the Chinese government uses non-tax-based subsidies to achieve its social policy objectives at the expense of firms’ profitability.

This paper examines how the departure of star analysts influences the performance of their non-star peers. Using manually collected data from China, we observe that non-star analysts enhance their forecast accuracy after a star analyst leaves. This effect is particularly pronounced when non-star analysts have previously worked within hierarchical teams or when the departing star analyst held significant internal resources within the brokerage. Additionally, the performance improvements are more substantial in environments with greater promotion opportunities and in brokerages characterized by a collective organizational culture. To establish causality, we leverage the suspension and subsequent reform of the star analyst voting system as an exogenous shock. A difference-in-difference (DID) analysis demonstrates that brokerages more affected by this shock exhibit larger improvements in analyst forecast accuracy. These findings offer new insights into the celebrity effect, highlighting how changes in team structure and internal competition influence analyst performance.

This paper examines the impact of product failures on the pricing of bank loans using hand-collected data on product recalls. We find that banks tend to charge higher loan prices for firms involved in product recalls. Uncertainty as to a recall's ultimate impact on a firm's credit risk conditions banks’ loan-pricing reaction, as reflected in a firm's default risk, information asymmetry and governance deficiency, and by the damage to its reputation, arising from the recall. Further analysis reveals that the impact of product recalls on the cost of debt is stronger in firms that rely more extensively on bank financing, firms with more severe recalls, and those adopting passive recall strategies. However, medical device firms, for which product recalls are often considered a normal part of doing business, do not experience a rise in their bank financing costs following a recall. Finally, we find that recall firms experience a deterioration in their financial performance and a rise in product lawsuits post recall. Overall, our findings shed new light on the economic consequences of product failures through the lens of creditors.

Using surname sharing as a novel measure of social ties, we examine the effect of directors’ surname sharing on firm value. We find that boards with greater surname homogeneity are associated with lower firm value. This finding is not driven by familial ties. The negative effect of surname sharing on firm value is more pronounced when directors share rare surnames and when firms operate in regions with stronger clan systems, but is attenuated by stronger corporate governance mechanisms. The market reacts positively to plausibly exogenous director resignations that reduce director surname sharing, and negatively to board appointments that increase director surname sharing. Director surname sharing lowers firm value by reducing director dissension, granting excess executive compensation, and increasing related-party transactions. Overall, our results suggest that directors’ surname sharing, an easy-to-trace but previously neglected social tie, can have significant economic consequences.

This paper examines the role of restrictive covenants in convertible bonds. After controlling for standard covenant intensity determinants, an average convertible bond offering has 3.21 fewer covenants than an average straight bond offering. While covenants negatively affect straight bond yields, there is no negative association between covenants and convertible bond yields. Moreover, contrary to straight bond covenants, convertible bond covenants are set largely independently of issuer characteristics. Overall, our findings suggest that the conversion option and certain covenants are substitutes for addressing debt-related financing costs. The few covenants included in convertibles represent irrelevant boilerplate clauses.

This study examines the relationship between government subsidies and income smoothing using a sample of US‐listed firms. We find that subsidized firms smooth their earnings more aggressively than their unsubsidized peers. This finding is consistent with the reasoning that subsidized firms bear higher political costs and have more incentives to smooth earnings to avoid public attention. In addition, smoothing by subsidized firms is more pronounced when the subsidies are granted through non‐tax‐related channels than through tax‐based channels, and the positive association between government subsidies and income smoothing is stronger for firms under higher public scrutiny and with less transparent information environments. Further analysis shows that smoothing by subsidized firms serves mainly to obfuscate earnings and that subsidized firms that smooth earnings tend to continue receiving subsidies in the future. Overall, our results help explain the role of government subsidies in shaping firms' accounting and disclosure choices.