We document a unique determinant of financial systemic risks in China, share pledge financing (SPF) network, by studying all listed Chinese financial institutions that provide SPF business. As one of the most popular refinancing tools in China, SPF formulates a network among financial institutions with common collaterals. We propose a centrality measure to quantify such network effects, and document that banks are more important than securities in the SPF network before 2018, but this pattern has reversed afterwards. SPF network effects, rather than SPF margin closeout risks, significantly increase systemic risks of China's financial institutions, by increasing both individual risks of financial institutions and connectedness among them. Such an impact of the SPF network on systemic risks is more pronounced in OTC markets than in exchanges. The SPF network affects systemic risks in more extreme cases, while SPF margin closeout risks affect systemic risks in more moderate cases.

This paper theoretically and empirically investigates factional arrangements within the Chinese Communist Party (CCP), the governing political party of the People's Republic of China. Using detailed biographical information of political elites in the Central Committee and provincial governments, we present a set of new empirical regularities within the CCP, including systematic patterns of cross‐factional balancing at different levels of the political hierarchy and substantial faction premia in promotions. We propose and estimate an organizational economic model to characterize factional politics within single‐party nondemocratic regimes and its economic implications.

We present a theoretical framework for studying how the cross holdings of asset securitization products may affect systemic risk in banking. We demonstrate that cross holdings can be understood from the perspective of profit seeking and credit creation; these motives drive up banks’ leverage. We also show that the capital adequacy ratio regulatory constraint may become invalid with cross holdings, which adversely impacts the monitoring of the stability of a system. We demonstrate that, generally, the impact of asset securitization on systemic risk is nonmonotonic and critically hinges on the banking asset structure, cross-holding degree among banks, and asset securitization characteristics including its state of risk retention. We empirically examine theoretical predictions using a comprehensive set of data from 27 countries/regions spanning the past 15 years.

We show that distortion in the size distribution of banks around regulatory thresholds can be used to identify costs of bank regulation. We build a structural model in which banks can strategically bunch their assets below regulatory thresholds to avoid regulations. The resultant distortion in the size distribution of banks reveals the magnitude of regulatory costs. Using U.S. bank data, we estimate the regulatory costs imposed by the Dodd-Frank Act. Although the estimated regulatory costs are substantial, they are significantly lower than banks’ self-reported estimates.

We hypothesize that corporate takeover markets create significant constraints for short sellers. Both short sellers and corporate bidders often target firms with declining economic prospects. Yet, a target firm’s stock price generally increases upon a takeover announcement, resulting in losses for short sellers. Therefore, short sellers should require higher rates of return when the takeover likelihood is higher. Consistent with this prediction, the return predictability of monthly short interest increases with industry-level takeover probability and decreases as takeover defenses are implemented. Our results suggest that efficient takeover markets create trading frictions for short sellers and can therefore inhibit overall market efficiency.

We introduce a real-time measure of conditional biases to firms’ earnings forecasts. The measure is defined as the difference between analysts’ expectations and a statistically optimal unbiased machine-learning benchmark. Analysts’ conditional expectations are, on average, biased upward, a bias that increases in the forecast horizon. These biases are associated with negative cross-sectional return predictability, and the short legs of many anomalies contain firms with excessively optimistic earnings forecasts. Further, managers of companies with the greatest upward-biased earnings forecasts are more likely to issue stocks. Commonly used linear earnings models do not work out-of-sample and are inferior to those analysts provide.

Child marriage remains common even where female schooling and employment opportunities have grown. We experimentally evaluate a financial incentive to delay marriage alongside a girls' empowerment program in Bangladesh. While girls eligible for two years of incentive are 19 percent less likely to marry underage, the empowerment program failed to decrease adolescent marriage. We show that these results are consistent with a signaling model in which bride type is imperfectly observed but preferred types (socially conservative girls) have lower returns to delaying marriage. Consistent with our theoretical prediction, we observe substantial spillovers of the incentive on untreated nonpreferred types.

Previous research has shown that leverage has a positive effect on wages. Using US state-level labour protection laws as an exogenous shock, we find that the adoption of the law alleviates the effect of leverage on wages. We show that the mitigating effect on the leverage-wage relationship is more pronounced for firms with strong employee bargaining power. Our study highlights the positive role played by labour protection laws in lowering firms’ labour costs and improving their financial flexibility, which complements the literature and advances our understanding of the broad implications of labour protection laws.

This study uses difference-in-differences (DiD) analyses to examine the consequences of adopting the U.S. critical audit matter (CAM) disclosure requirement for preparers and users of financial reports. The CAM requirement is one of the largest expansions of the U.S. audit report since the 1940s. We document significant changes to financial statement footnotes referenced by CAMs, which suggests an indirect consequence where management disclosure changes in areas that are expected to be scrutinized following auditor-provided disclosure. Results also suggest that, on average, CAM disclosures do not provide incremental information to the market. To further examine market reaction, we develop well-specified prediction models for the expected number and subject areas of CAMs. We find limited initial evidence that the market reacts negatively when unexpected CAMs are disclosed. Overall, our findings provide insights on the new CAM standard and particularly demonstrate its relevance to management disclosure decisions and to the market.