Using a large sample of hand-collected directors' foreign experience data for Chinese listed companies from 2001 to 2016, we examine the impact of directors with foreign experience on corporate tax avoidance. We find a significantly negative association between directors with foreign experience and tax avoidance, suggesting that these directors can help constrain their firms' tax aggressiveness. The result is robust to Heckman two-stage analysis, instrumental variable approach, inclusion of potential omitted variables, change analysis, and alternative tax avoidance measures. Further analyses reveal that reputation concerns and CSR awareness are potential channels through which returnee directors affect corporate tax avoidance. The negative relation between directors with foreign experience and tax avoidance only holds when directors' foreign experiences are derived from countries or regions with higher investor protections. Non-independent directors with foreign experience have larger impacts on corporate tax avoidance than independent directors, and the effect is more pronounced when directors with foreign experience sit on audit committees. Directors' working and studying experiences both have important impacts on corporate tax avoidance. The result also suggests that the negative relation between directors with foreign experience and tax avoidance is more pronounced in non-state-owned firms. Overall, the findings suggest that directors' foreign experience matters for corporate tax behavior in emerging markets.

This paper examines the impact of geographic technological diversification on firm innovativeness. Our empirical study conducted on a panel of U.S. manufacturing companies shows that firms with geographic technological diversification are more innovative (as measured by both patents and citations) than firms without. Furthermore, we find that the positive relation between geographic technological diversification and firm innovation is driven by domestic technological diversification, while international technological diversification is negatively related to firm innovation. Our valuation tests further confirm the detrimental effect of international technological diversification on shareholder wealth.

We examine whether the average earnings surprises announced yesterday affect investors’ responses to earnings news announced today. We find that in the short window surrounding an earnings announcement, the market rewards today's earnings news that is above yesterday's average earnings surprises with a premium, consistent with yesterday's average becoming a reference point for investors to classify today's earnings news as a gain or a loss. The price premium for an above-average earnings surprise is larger when more earnings announcements are made on the same day and when investors face greater uncertainty in assessing firms’ performance. We interpret this evidence as suggesting that investors rely more on the average as a reference point when they are more likely to be subject to cognitive constraints in processing information. We also find that firms announcing above-average earnings surprises exhibit a greater abnormal trading volume, consistent with the notion that beating reference points prompts investors to trade.

This paper examines the link between non-executive employee ownership and the terms and pricing of corporate loans. We find that a one-standard-deviation increase in employee stock ownership is associated with 1.67% decrease in loan spreads and one fewer restrictive loan covenant. The negative effect of employee stock ownership on loan spreads remains significant when we use within-firm variation and perform an analysis with instrumental variables based on demographic characteristics to address the concerns of endogeneity. Further analysis reveals that employee stock ownership may affect loan spreads by improving corporate governance, curbing managerial risk-taking, reducing information asymmetry, and improving employee retention. In contrast, we find that employee ownership via stock options is associated with greater loan spreads, perhaps owing to their convex payoff structure. Overall, our results underscore the importance of the level and structure of employee ownership for pricing corporate loans.

We examine the effects of a temporary suspension of short-sale price tests on the options market. Consistent with the notion that put option trading substitutes for short selling, we find a significant reduction in put option volume. In addition, pressure on put option prices significantly declines, violations of the put-call parity become significantly less frequent, and option volume becomes less informed. Our findings add clarity to a long-standing debate on whether investors use options to circumvent equity short-selling restrictions.

In this article we examine whether and how changes in personal bankruptcy laws, viewed as a shock to employees’ expected personal wealth, affect corporate policies. Following a reform in personal bankruptcy laws that limits individuals’ access to bankruptcy protection, firms more affected by this regulation reform increase labor costs, reduce investment, and engage in less risk taking. The effects are stronger when employees have more bargaining power. Furthermore, firms in industries characterized by high unemployment risk reduce leverage. These results support the view that firms choose more conservative policies to mitigate employees’ expected welfare losses.