We find that firms that provide limited liability and indemnification for their directors enjoy higher credit ratings and lower yield spreads. We argue that such provisions insulate corporate directors from the discipline from potential litigation, and allow them to pursue their own interests by adopting low-risk, self-serving operating strategies, which coincidentally redound to the benefit of corporate bondholders. Our evidence further suggests that the reduction in the cost of debt may offset the costs of directorial shirking and suboptimal corporate policies occasioned by this insulation, which may explain why stockholders have little incentive to rescind these legal protections.

This study examines the influence of global board reforms on cross-border mergers and acquisitions (CBMAs). Using a difference-in-differences methodology, we find that CBMA flows increase significantly following board reforms in both home and host countries. The effect is more pronounced for countries with relatively weaker external governance mechanisms compared to their counterparts. Our findings suggest that board reforms enhance board functions, thereby facilitating firms' outbound investments. Simultaneously, improved board governance mitigates acquisition risks, attracting inward investments and, consequently, stimulating CBMA flows.

Although the history of China's venture capital (VC) market is relatively short, it has already become the second largest VC market in the world and produced the second largest number of “unicorns” (startups with a valuation over $1 billion) after the US. Despite the remarkable growth of both China's tech sector and venture capital market, academic research in this area remains sparse. Two broad issues hinder the efforts of researchers studying this market: choosing the right data sources and understanding evolving institutional details. To address these two issues, I first describe available data sources, accompanied with filters aimed at improving the quality of the data. I then review institutional details unique to the Chinese setting and recent regulatory changes that have direct impacts on the Chinese venture capital market. I conclude by listing some open research questions.

This paper investigates how institutional environment like property rights protection influences the size and composition of corporate boards, and further, how board structure impacts firm performance in China. Using a World Bank survey of 2400 public and private firms across 18 Chinese cities, I find robust evidence that weaker helping hand from the government is associated with a higher number and proportion of outsiders on the board, after controlling for the effects of firm complexity, growth opportunities, CEO characteristics, ownership, and the potential endogeneity concern. Furthermore, the results show that when firms are operating in a weak property rights environment, more outsiders improve corporate performance.

Using the data of Chinese industrial enterprises, we examine how the incentive to reach GDP growth targets affects the local firms' capacity utilization. We find that Chinese economic growth targets exhibit a persistent pattern of top-down amplification along different jurisdiction levels, which is associated with a decline in local firms' capacity utilization. Moreover, the effect of amplified targets on overcapacity is more pronounced (1) when officials utilize hard-constraint vocabulary in setting the economic growth target, (2) during the National Congress of Communist Party, and (3) when the age of prefecture-level officials is close to 55. We also find officials intervene local firms' capacity decisions by increasing private communication with local entities and loosening public policies for local firms within their jurisdictions. Further results show that the amplification of economic targets is detrimental to future development of both regional economy and local firms.

We show that socially responsible firms use cash as a commitment device to honor implicit commitments to stakeholders. Firms with better social performance hold higher cash balances, especially for firms with social performance related to stakeholders or requiring cash spending. This relation is also stronger for firms that benefit more from social performance, e.g., firms that face more competition in product and labor markets. Social performance related to stakeholders or requiring cash spending increases the marginal value of cash.

This paper investigates the effect that employee treatment schemes have on corporate innovation performance. We find that firms with better employee treatment schemes produce more and better patents through improving employee satisfaction and teamwork. Additional tests suggest that our main findings cannot be attributed to job security, unionization, reverse causality, and omitted variables. We also find that firms with better employee treatment schemes produce patents that enhance market valuation and facilitate better future operating performance. Collectively, our findings show that treating employees well benefits firms and shareholders, for well treated employees are encouraged to create intellectual property.

Carbon trading is an important market mechanism to achieve carbon neutrality. This study explores the possible impact of carbon markets on the stock market performance of listed companies using data from 2013 to 2022 in China's carbon trading pilot regions. Using the event shock of delayed trading in the Chinese carbon market, we attempt to answer the question of the role of green innovation hidden under the compliance event. Results show that a 1% increase in carbon market turnover leads to an average decrease of CNY 0.123 in the company's stock price. Large-scale companies that have been listed for a short time and have poor green innovation capabilities are more vulnerable to the carbon market. Under delayed trading, firms with high green innovation capability will be profitable. By contrast, profitability is not reflected in low green innovation firms. Companies with low green innovation can reduce stock market performance owing to the carbon market's undersupply situation. Our study reveals the stock performance of different carbon trading entities under delayed trading, providing a realistic basis for firms to choose green innovation while helping to improve carbon trading market dynamics.

We investigate how changes in the availability of bank credit influence how public firms manage their working capital, which is essential to their operations. In doing so, we provide an enhanced understanding of what significantly influences corporate working capital management. We find that changes in the availability of bank credit significantly influence a number of aspects of a firm's working capital policies, and these effects often differ across firms that are more or less dependent on bank financing. Interestingly, our evidence points to the importance of the changing mix of U.S. companies for working capital practices.

Employing a large sample of 7246 firms across 38 economies from 2000 to 2013, we show a positive relation between foreign institutional ownership (FIO) and firms' speed of leverage adjustment. This positive relation is concentrated for over-leveraged firms that need to decrease financial leverage to rebalance their capital structures. We validate our findings using a 2SLS regression and a DiD estimation to exploit the exogenous variations in FIO generated by the inclusion of MSCI membership and the passage of the JGTRRA. These results suggest that foreign institutional investors play an important monitoring role in mitigating agency conflicts between shareholders and managers. Overall, this paper lends support to the dynamic trade-off theory.