We examine the impact of the global trend towards trade protectionism on household stock market participation, focusing on the 2018–19 US-China trade war as an exogenous trade shock. We leverage cross-city variation in exposure to the trade war by combining industry-specific increases in US tariffs with variation in industry composition across cities. Using nationally representative household finance survey data collected around the trade war years, and a difference-in-differences design, results show that the onset of the trade war decreases the likelihood of households participating in the stock market and reduces the proportion of stocks in their portfolios. Further evidence reveals that these effects stem from the trade war's influence on decreasing household income, increasing income volatility, fostering risk aversion, and promoting negative views or beliefs about the economy. Our findings suggest that reduced stock market participation is a pathway through which trade protectionism affects the financial system and the economy.

This study examines how options trading influences brand development strategies by encouraging managerial risk-taking. We find that firms with higher levels of options trading tend to introduce more new trademarks, which exhibit lower citation rates from subsequent trademarks. These firms favor brand creation over extension, leading to increased brand riskiness, as evidenced by greater trademark diversity. Potential channels for these effects include increased institutional ownership by transient investors and enhanced managerial hedging opportunities. These effects are more pronounced in firms with weaker governance, managers with higher pay-risk sensitivity, younger managerial teams, and intense competition. Additionally, we observe a negative relation between unrelated brand diversification, driven by options trading, and firm value. Our findings support the notion that active options markets incentivize managers to pursue riskier brand strategies.

Can bank competition help to attenuate the prevalence of zombie firms? Motivated by a stylized model, this paper studies the effect of bank competition on the formation of zombie firms in two stages: the formation of distressed firms and distressed firms obtaining zombie lending. Using China's 2009 bank entry deregulation as a quasi-natural experiment, the paper finds that bank competition lowers the probability of the formation of distressed firms, while it increases the probability of distressed firms obtaining zombie lending. Overall, bank competition decreases the formation of zombie firms. In addition, the findings show that a higher ex ante proportion of bad loans and higher probability of bad loan recovery lead to a higher probability of distressed firms receiving zombie lending. Both factors encourage banks to sustain lending to distressed firms to keep them alive and to gamble that those firms may recover in the future.

Marshalling a large and novel dataset of cell towers and using the purchase of Yu’E Bao as a proxy for Chinese households’ investment in money market funds, this paper investigates how broadband infrastructure affects the welfare of households in wealth management. We find that with the improvement in broadband infrastructure, Internet service becomes more available to households and they tend to convert bank deposits with suppressed rates of interest into money market funds that provide less regulated and hence higher rates of return. Further analyses show that the effect of broadband infrastructure on the conversion of bank deposits into money market funds is more pronounced in counties with lower density of bank branches and among less educated people. Our empirical findings suggest that by alleviating the policy distortions imposed on the traditional banking sector, online financial products and service are powerful tools in the promotion of financial inclusion.

This paper examines how Chinese firms use WeChat for voluntary disclosure. Using a topic model, we classify over 1.6 million WeChat articles into two categories: “relevant” and “noise” articles. We find that on days when firms publish value-relevant articles, there is a significant increase in abnormal returns and stock liquidity. Further analyses reveal that WeChat serves as an alternative disclosure channel for providing new information. Firms also use WeChat to complement mandatory disclosure. However, we find that firms with negative earnings tend to issue more noise articles around earnings announcements. These noise articles are associated with higher short-term announcement returns in cases of significantly negative earnings events. These results suggest that firms may engage in opportunistic WeChat disclosure behavior. Collectively, our study highlights the significant role of WeChat in the voluntary disclosure practices of Chinese companies.

We conduct a comprehensive study on momentum spillovers in the Chinese stock market using various types of economic linkages, with particular attention to momentum spillover via news co-mention linkages. We utilize millions of Chinese business news articles and develop a flexible and innovative algorithm to identify linkages among listed firms. We find that news co-mention momentum spillover is stronger than others, unifying various forms of momentum spillover effects in the Chinese market and replacing the role of analyst co-coverage in the U.S. News co-mention identifies a wide range of economically important linkages, particularly recovering more cross-industry linkages than other link identification methods, which contributes to its strong performance.

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.

This study investigates the underexplored role of onsite viewing activities in the housing search process. By incorporating buyer heterogeneity into the housing search model of Courant (1978), we show that buyers with higher private valuations tend to view more properties onsite and ultimately pay higher prices. Utilising a proprietary dataset from the largest real estate agency in Beijing, our analysis reveals that increased onsite viewings significantly enhance both the likelihood of a transaction and the final purchase price. We establish causality by employing an instrumental variable approach that leverages exogenous variations in heavy pollution and rainfall, which hinder buyers’ ability to conduct onsite house viewings. More intensive onsite viewings raise transaction price as they reveal a buyer’s higher private valuation to the seller. Besides, onsite viewings also function through reducing information asymmetry and improving match quality.

This paper examines whether corporate social responsibility (CSR) aligns with shareholder interests or stems from agency conflicts. To explore this, we utilize the staggered adoption of state-level Corporate Opportunity Waiver (COW) laws, which potentially weaken the fiduciary duty of loyalty among directors and officers, thereby exacerbating agency conflicts. Through a difference-in-differences analysis, we find that CSR activities significantly decrease following the enactment of COW laws. This decline is more pronounced in firms with weaker corporate governance, greater external opportunities for directors and officers, less incentivized CEOs, and those operating in less competitive industries. Additionally, our results show that the positive effect of CSR on financial performance is diminished by the adoption of COW laws. These findings support the value-enhancing perspective of CSR and highlight the importance of fiduciary duty of loyalty in promoting CSR.

Our study examines how the adoption of the inevitable disclosure doctrine (IDD) across US state courts affects the relationship between leverage and CEO compensation. We find that the IDD adoption significantly attenuates the typically positive association between leverage and CEO pay. This effect is more pronounced for CEOs with higher ex-ante mobility, greater career concerns, weaker organizational influence, and higher firm-specific skills. Rejecting the IDD, on the other hand, amplifies the positive relationship between leverage and CEO pay. Our findings underscore the influence of labor market dynamics on CEO compensation.