This paper investigates the impact of CEOs' career experiences on corporate investment decisions. We hypothesize that CEOs with more diverse career experiences are less likely to be constrained by insufficient internal capital. The potential mechanism is that rich external experiences help CEOs accumulate social connections and these connections mitigate information asymmetry and lead to better access to external funds. Consistent with this argument, we find that firms with CEOs who have more diverse career experiences exhibit lower investment-cash flow sensitivity and exploit more outside funds, including both bank loans and trade credit. These effects are more pronounced among financially constrained firms. Even controlling for connections gained through financial institutions or government offices, the effect of diversity still remains very strong. Finally, we conduct several tests to mitigate the concern that our results are driven by the endogeneity of CEOs' appointments.

Past studies typically have focused on whether people perceive more rare risk after experiencing catastrophic disasters. We show that people can also feel less risk with unexpected lucky disaster experience. By exploring a novel identification strategy based on households’ expectations, we find that households perceive less (more) risk when they experience disasters that have lower (higher) fatalities than what was expected. This opposite experience effect of rare disasters is substantial. A one standard deviation increase in the negative (positive) experience shock is associated with a 1.71% decrease (a 1.31% increase) in the life insurance-to-portfolio ratio. We discuss three possible mechanisms to account for our empirical findings: incomplete information learning, salience theory, and change in risk preferences.

[Individual investor trading results in systematic and economically large losses. Using a complete trading history of all investors in Taiwan, we document that the aggregate portfolio of individuals suffers an annual performance penalty of 3.8 percentage points. Individual investor losses are equivalent to 2.2% of Taiwan's gross domestic product or 2.8% of the total personal income. Virtually all individual trading losses can be traced to their aggressive orders. In contrast, institutions enjoy an annual performance boost of 1.5 percentage points, and both the aggressive and passive trades of institutions are profitable. Foreign institutions garner nearly half of institutional profits.]

This paper examines the diversification choices of top managers and their implications for the levels of portfolio equity incentives as well as for firms' financial policies. Standard portfolio theory should also apply to corporate managers and therefore excessive risk exposures to the firm should create portfolio diversification incentives for the managers. We use a unique dataset from the Taiwan tax data center and construct the measures of the degree of diversification in a manager's equity portfolio that is made up of equities of other firms to capture his motives for diversifying his risk exposure to his own firm. We provide empirical evidence supporting the view that managers have a risk-reduction motive when they trade in the equities of other firms besides their own. Moreover, we document evidence that the degree of diversification in such equity portfolios also significantly affects managerial equity incentives as well as firms' financial policies. Overall, our findings confirm that managers' personal diversification can help make up for the diversification that the managers would otherwise have lost, thereby reducing the agency cost of equity incentive contracts.

Abstract Rational models claim “trading to learn” explains widespread excessive speculative trading and challenge behavioral explanations of excessive trading. We argue rational learning models do not explain speculative trading by studying day traders in Taiwan. Consistent with previous studies of learning, unprofitable day traders are more likely than profitable traders to quit. Consistent with models of overconfidence and biased learning (but not with rational learning), the aggregate performance of day traders is negative; 74% of day trading volume is generated by traders with a history of losses; and 97% of day traders are likely to lose money in future day trading. Received: March 4, 2019; Editorial decision: May 16, 2019 by Editor: Jeffrey Pontiff. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

By analyzing a sample of Chinese firms that split their stocks via stock dividends and using proprietary trading data to measure investors' gambling preferences, we find that stock splits raise the stocks' lottery characteristics, making them attractive to gambling investors, who willingly pay higher prices for skewed securities and share firm risk with existing shareholders. Split firms take more risk. Our findings suggest that by attracting gambling investors, stock splits facilitate (large) shareholders to reduce wealth exposures to firm risk and increase the firms' risk-taking capacity. Furthermore, due to the influx of gambling investors and more risk-taking, split firms' return comovement with lottery-like stocks increases, while their market risk decreases, suggesting that stock splits induce fundamental changes to the firms' investor base and risk profile.

This study uses a Vector Autoregressive (VAR) model to examine interdependencies among institutional investors, big individual investors, and small individual investors, and the effects of their trading on stock returns on the Taiwan Stock Exchange (TSE). The results imply that, during the sample period, big individual investors are the most well informed players; their trading affects not only stock returns but also small individual investors. Small individual investors are not well informed and are slow learners. Their orders to trade tend to provide liquidity to institutional and big individual investors, but there is no compensation for their liquidity services. We find that institutional investors follow neither positive-feedback nor negative-feedback trading strategies. Overall, the responses to shocks, except for those of small individual investors, decay quickly, indicating that the TSE can absorb shocks quickly and efficiently. Our analysis implies that small individual investors would be better off institutionalizing their investment decisions (e.g., by investing in mutual funds).

Abstract Using data on all employees at listed companies in Taiwan, we find that the bias toward employer stocks is generic to individual investor decision making, but not limited to retirement plans. Seventy-one percent of the sample employees invest in employer stocks and employer stocks make up on average 47% of employee equity portfolios. The underdiversification resulting from the bias toward employer stocks is very costly. Holding current portfolio risk constant, employees forego 4.89% per annum in raw returns by investing in employer stocks, which represents 39.74% of their average 1998 salary income. Our findings have important implications for social security reform and retirement account management.

We examine how changes in property rights security impact firm capital structure decisions by exploiting a quasi-natural experiment, specifically, the implementation of China's Property Rights Law in 2007 (the Law). Using a large dataset of non-listed firms and a difference-in-differences (DID) design, we examine the Law's cross-sectional heterogeneous effects on firm leverage. We find that financially constrained firms exhibit a significant increase in leverage relative to unconstrained firms after the Law's implementation. Our results are robust to three alternative measures of financial constraint: asset tangibility, ownership structure, and firm size. This finding is consistent with the financial constraint hypothesis that states that lenders are willing to extend more credit to constrained firms given that the Law strengthens creditor rights. Overall, we find that the Law has had a significant impact on firm leverage decisions and that it is particularly important to financially constrained unlisted firms.