Mini options are specially catered to retail investors with limited capital for trading options on extremely high-priced securities. The coexistence of both Mini and standard options for the same underlying security provides us a novel setting to investigate whether and how small retail investors use derivatives contracts differently compared to their counterparts. First, we find that the Mini option investors are more subject to constraints of limited attention. Specifically, Mini option investors trade more intensively near market opens, and their trading activities are more heavily influenced by attention-grabbing events and attention-distracting events. Second, we document that Mini option investors’ trading is more likely to be driven by market sentiment than standard option investors. Third, the trading performance of Mini option investors is also worse than that of standard option investors, with less positive intraday returns and more negative overnight returns.

This study explores how the violation of free short selling assumption affects the performance of CAPM and the Fama-French three-factor model, as existing studies show that short-sales constraints affect asset pricing of the stocks. Using data from the Hong Kong Stock Market which has unique regulations on short selling, we conduct both time-series and cross-sectional regression analyses to evaluate the performance of the two models under the short-sales-constraints and the no-constraints market environment. The two models perform much worse in the former environment than in the latter, indicating a significant impact of the short sales constraints on the explanatory power of the models. We then augment the two models with a shortability-mimicking factor. Our results show that the factor has a significant power in explaining both time-series and cross-sectional variation in the size-B/M portfolio returns. The addition of the factor to the two models considerably increases their overall performance.

Recent research suggests that insiders’ incentives for capturing cash flows affect price formation process in which insiders are inclined to withhold good news and to accelerate the release of bad news (Jin and Myers, 2006). We investigate whether insiders’ incentives for private control benefit, proxied by control-ownership wedge, affect firm-specific return characteristics. We find that control-ownership wedge is negatively related to the likelihood of positive return jumps and positively related to the extent of asymmetric market reaction to good news rather than to bad news. Overall, our results support the notion that corporate insiders increase opaqueness and withhold good news in order to capture unexpected cash flow.

This study examines whether insiders’ incentives for private control benefits affect investment sensitivity to stock price. While Chen et al. (2007) link stock price informativeness to firms’ learning from the stock market, we offer an alternative agency-cost based explanation. Using a total of 2822 firms from 22 countries in East Asia and Western Europe, we document a strong negative association between control-ownership wedge and investment-q sensitivity, suggesting that insiders’ incentives for private control benefit reduce their propensity to listen to the market. Furthermore, the negative impact of wedge on investment-q sensitivity is primarily driven by sub-optimal investments. Overall, we provide evidence that agency problem is an important factor that determines the learning from the stock market in capital allocation.

This paper investigates the effect of the “First Financial Restructuring” (FFR) on the operating efficiency of commercial banks in Taiwan. Applying data envelopment analysis (DEA) to operations data for 40 commercial banks over the 6-year period 2000–2005, we find that while the banks have lower operating efficiency on average during the reform period (2002–2003) compared to the pre-reform period (2000–2001), improved operating efficiency is reflected in the post-reform period (2004–2005). Our results remain unchanged even after controlling for the non-performing loan ratio, capital adequacy ratio, bank ownership, size, and GDP growth rate. These results suggest that the improved efficiency in the post-reform period is possibly due to enhanced banking and risk management practices and benefits obtained from compliance with the FFR.

We revisit and extend the topic of secondary share sales and revisions in IPOs. First we test to determine if secondary share sales constitute a negative signal that is captured in aftermarket performance. We find secondary share sales in general are not correlated with poorer initial or long-run performance, but selling by officers and directors is associated with poorer long-run returns. Second, we examine if secondary share revisions (1) reflect selling shareholders’ attempts to conceal private information or (2) are contingent upon whether a firm can reach its goal of raising sufficient capital. We find empirical support for a capital goal, but not for concealment.

This study examines the pricing of multivariate crash risk (MCRASH) in the Chinese stock market. Our findings indicate a significantly positive influence of MCRASH on the cross-section of future stock returns, with the MCRASH premium being notably higher in China than in the US. A plausible explanation for China's higher MCRASH premium is that Chinese stocks may experience greater loss magnitudes in left-tail events, leading investors to demand higher expected returns as compensation for bearing a unit of MCRASH. Additionally, the return effect of MCRASH is found to be significantly stronger for stocks of non-state-owned enterprises and those with lower media coverage. Finally, we construct a four-factor model comprising market, size, value, and MCRASH factors, which demonstrates superior explanatory power compared with the CH3 and CH4 models proposed in the literature.

Recent reform in China has made a subset of Chinese stocks available to foreign investors, partially opening up China's stock market. Our difference-in-differences analysis shows that this liberalization reform boosts investments in investable firms relative to noninvestable ones, with results robust to various sensitivity analyses. Besides capital inflows and risk sharing, a potential but underexplored channel is improved corporate governance due to direct and indirect pressures from foreign investors, which lowers the cost of capital and improves capital allocation efficiency. Consistent with this corporate governance channel, we find that the liberalization reform reduces investable firms’ agency costs, increases their investment efficiency and total factor productivity, and improves their operating performance. Further analysis finds that the positive investment effect from the liberalization reform is stronger among firms that were poorly governed before the reform.

Improved employment protection may affect corporate trade credit decisions due to increased labor costs. Using the staggered adoption of U.S. state-level Wrongful Discharge Laws as a quasi-natural experiment, we find that suppliers’ provision of trade credit decreases significantly with better labor protection. The trade credit reduction is more pronounced for firms with higher distress risk, financial constraints, and operating leverage. Firms operating in states with lower unionization and in industries with higher labor turnover, and greater product market competition cut their trade credit more. The decrease in trade credit supply also varies with the type of products sold and customer concentration.