I study how the density of executive labor markets affects managerial incentives and thereby firm performance. I find that U.S. executive markets are locally segmented rather than nationally integrated, and that the density of a local market provides executives with non-compensation incentives. Empirical results show that in denser labor markets, executives face stronger performance-based dismissal threats as well as better outside opportunities. These incentives result in higher firm performance in denser markets, especially when executives have longer career horizons. Using state-level variation in the enforceability of covenants not to compete, I find that the positive effects of market density on incentive alignment and firm performance are stronger in markets where executives are freer to move. This evidence further supports the argument that local labor market density works as an external incentive alignment mechanism.

The systemic risk and negative social impacts from bank-issued wealth management products (WMPs) are well studied by scholars and practitioners in China. Using hand-collected bank data, we find that WMPs help reduce banks’ cost of funds, which is then passed on to their borrowers as lower borrowing cost. This finding shows an upside of this controversial but increasingly popular bank product. We propose four mechanisms through which WMPs can lower banks’ cost of funds: structural change in deposits, cross-subsidization, liquidity effect, and related-party transactions. We find supporting evidence for those mechanisms, and their effects vary across state-owned, joint-stock, and city commercial banks. Those variations are consistent with the unique characteristics of each bank group. We further explore the competition for capital between state-owned and non-state-owned banks. The results suggest that state-owned banks offer significantly higher interest rates for deposits as non-state-owned banks expand in the same region. WMP issuance is likely a differentiation strategy in response to the competition for deposits.

This paper contributes to the literature on foreign strategic investors (FSIs) by examining the influence of FSIs on non-interest activities. Using data from China’s banks for 2001–2016, we find that FSI entry is associated with significantly increased non-interest activities, especially commission and fee activities, of Chinese banks. Furthermore, local banks with directors appointed by FSIs have increased non-interest activities. Moreover, in state-owned banks, the effects of FSIs and directors assigned by FSIs on non-interest activities are both weaker. We also find that non-interest activities have not significantly changed after the exit of FSIs. These empirical findings will be informative and relevant to both policymakers and practitioners.

Active corporate executives are a popular source of independent directors. Although their knowledge, expertise, and network can bring value to firms on whose boards they sit, independent executive directors may be more likely to be distracted than other directors due to their outside executive roles. Using newly constructed data linking independent directors to their employers, we identify periods when employers' poor performance may distract them from board service. We find that firms with distracted independent executive directors have lower performance and value, higher CEO compensation, reduced CEO turnover-performance sensitivity, lower earnings quality, and lower M&A performance. These adverse effects are mainly driven by distracted directors who sit on relevant committees, and are stronger for small boards.

This study investigates whether and to what extent bank control over firms by their representation on boards of directors and by equity holdings through trust business may affect corporate environmental responsibility. Using a large sample of listed firms in the United States from 2004 to 2016, we find that banker directors with equity affiliation improve firms’ environmental performance scores and such impact is associated with affiliated bank’s shareholdings, investment horizon, and environmental orientation. Additionally, we document that the effects of bank control on firm’s environmental investments is stronger for firms with more short-term institutional investors but weaker for firms with more analyst coverage. Moreover, we find that when firms are financially constrained, banker directors reduce environmental investments. Finally, product-market competition matters for a firm’s environmental strategies as the relation of bank control and environmental investments is more profound under conditions of greater industry competition.

This paper investigates how the regulation of bank wealth management products (WMPs) affects corporate innovation. We build a concise model linking firms’ assets allocation decisions to regulatory variables affecting banks. The model suggests that current WMP regulation can enhance formal lending and stimulate innovation among state-owned enterprises (SOEs), while having no impact on innovation in private enterprises (PEs). Empirically, we identify firms’ exposure to bank regulation by examining the number of WMPs issued by banks in 2017 and the distance between banks and firms. Our results indicate that innovation output significantly increased for highly exposed SOEs, while there was no significant change for PEs. Using city-level data, we further observe that regulation fosters innovation in regions with higher exposure. Our findings suggest that regulation exerts heterogeneous effects on the real economy by banks’ credit allocation and firms’ investment strategies.