This paper provides comprehensive, detailed documentation of major corporate governance reforms (CGRs) undertaken by 26 advanced and emerging economies. We investigate whether these reforms have altered investor protection (IP) and impacted corporate investments. Specifically, we estimate the CGRs' impacts on foreign acquirers' tendency to pick better performing firms in emerging markets. We argue the cherry picking is partly due to emerging countries' weaker IP than acquirer countries', predicting a positive relation between the degree of cherry picking and the gap in the strength of IP. Thus, if the CGRs strengthen IP, the gap will decrease (increase) following a CGR in a target's (acquirer's) country, moderating (intensifying) the cherry picking tendency. This is what we find when we estimate difference-in-differences in cherry picking before and after a CGR. These results not only demonstrate the important impacts the CGRs had, but also imply the IP gap between capital exporting and importing countries distorts firm-level allocation of foreign capital inflows and reduces the benefits of globalization.

We examine the relation between earnings smoothing and stock price crash risk to evaluate the role of earnings smoothing on the downside risk of equity values. We find that, within firm, a higher degree of earnings smoothing is associated with greater crash risk; and this association, in the cross-section, is more pronounced for firms with fewer analysts following, smaller institutional holdings, and positive cumulative discretionary accruals. We also use stock returns to assess the economic significance of our results. We find that, controlling for firm fixed effects, earnings smoothing is associated with sizable negative returns in the quarter following the earnings announcement. Our findings caution investors about the downside risk of firms reporting smooth earnings, in contrast to the conventional belief that these firms are low in equity risk.

This study examines the effect of fund managers' bubble-crash experience on their investment styles. Using the 2007–2008 and 2014–2015 bubble-crash events of China's A-share market, we find that managers who experienced a stock market crash are more value-oriented in their portfolios. While the effect of firsthand bubble-crash experience on investment style is significant, we find little evidence of the impact of secondhand experience gained from institutional memory or the management team. We explain these findings using incomplete information learning theory, salience theory, and the change in risk preferences. Moreover, different investment styles across manager types affect fund performance around the time the new bubble burst in June 2015. Managers with 2007–2008 bubble-crash experience and a more value-oriented investment style have lower (higher) fund returns than those without such experience before (after) the bubble burst.

In this paper, we empirically analyze how strategic alliances affect the innovation output of the firms forming the alliance. We find a positive effect of R&D-related strategic alliances on corporate innovation, as measured by the quantity and quality of patents filed. This effect is stronger for firms led by CEOs with higher general managerial skills, firms with greater experience from earlier alliances, and firms operating in R&D-intensive industries. Furthermore, the innovation-fostering effect of strategic alliances is more pronounced if alliance partnering firms share a common institutional blockholder or have a higher degree of technological proximity. We also document, for the first time in the literature, a unique contractual mechanism through which firms share the benefits of innovation with their alliance partners, namely, “co-patenting.”

Using manually matched data from US-China trade dispute records and Chinese customs trade data, this study assesses the impact of the US-China trade disputes on corporate earnings management (EM) of Chinese listed companies. We find a significant reduction in accrual-based EM in firms affected by the retaliatory tariff changes due to the trade disputes. Furthermore, the impact of this shock goes beyond the directly affected firms and spreads along the supply chain as well as through block shareholding. Importantly, after excluding alternative explanations such as government subsidies, or managerial slack caused by government implicit guarantees, our results remain robust. Our mechanism analysis suggests that in response to the trade disputes, contracting parties seek transparency to alleviate information asymmetry, therefore, the increased demands for high earnings quality from creditors explain the impact of trade disputes on EM. We further find that trade disputes mainly reduce downward earnings manipulations, with no significant impact on upward EM or real EM. Additionally, the trade disputes effect is weaker in firms with political connections and effective monitoring mechanisms. Overall, this study highlights that firms strategically manage the disclosure of accounting information under uncertainties, where contracting demand is a significant factor explaining why firms enhance earnings quality in reaction to trade disputes.