This paper investigates why and how firms’ bribe payments vary as a result of the interaction between firms and local public officials under the decentralized regulatory system for rights offerings implemented prior to 2001 in China. Using the gap between the estimated and reported total direct costs of rights offerings as a measure of firms’ bribes payments in the process of rights offering applications under this system, we find that bribe payments are positively related to local governments’ control rights, firms’ opportunity costs of refusing to pay bribes, and the severity of firms’ Jensen agency problems. We further show that after termination of the regulatory system, firms’ bribe payments are substantially reduced, and local governments’ control rights as well as the severity of firms’ Jensen agency problems can no longer explain the variation in bribe payments.

This study develops a two-sided matching structural model to examine whether government venture capitals (GVCs) crowd out private venture capitals (PVCs) by comparing the pre-money economic valuation of observed and counterfactual investments. The structural model also allows us to study the impacts of GVCs on the post-investment performance of the funded companies. Using China's VC market data between 2000 and 2020, we find that GVC-funded companies are those neglected by PVCs, and the potential economic performance of GVC-funded companies is inferior to that of PVC-funded ones. It means that the data do not support the crowding out conjecture. Moreover, the evidence suggests that the potential innovativeness of GVC-funded companies is higher than that of PVC-funded companies, indicating that GVCs bridge the equity gap left by PVCs in innovative companies. Regarding the impacts on companies' post-investment performance, GVCs are not significantly different from PVCs in improving companies' economic performance, and they are better than PVCs in improving companies' innovative performance. We also explore the impacts of different types of GVCs, the impacts of the co-investment between GVCs and PVCs, and the impacts of GVCs on companies in different stages of development.

Abstract We document strikingly opposite time‐series patterns of analyst forecast errors (FEs) and associated market reactions, illustrating that analyst forecasts have become a less useful benchmark of the market's earnings expectations in recent years. The mean FE has increased from negative one to two cents in the 1990s to positive one to two cents in the 2010s, whereas average earnings announcement returns have declined from 0.30% in the 1990s to −0.30% in the 2010s, turning negative in the past 17 years. Underlying the time‐series pattern of increasing FEs is a secular trend where firms move away from just meeting or beating, to which the market reaction has become increasingly negative, toward a large beat, while the frequency of meeting or beating the consensus analyst forecast remains stable during the same period. We develop a parsimonious predictive model of earnings surprises based on peer and past analysts' FEs and find that our predicted FE closely mirrors reported FE, with the average value hovering around one to two cents in most years of the past two decades. The market reaction to “around zero” unexpected FE (FE minus predicted FE) is indistinguishable from zero over time, suggesting that our model serves as a good benchmark of the market's expectation. Our evidence has broad implications for appropriate earnings benchmarking, for the disappearing discontinuity of the earnings surprise distribution around zero, for earnings management to beat analysts' forecasts, for empirical designs when examining the earnings‐return relation, and for the disappearing earnings announcement premium.