This paper investigates whether the disruption of political connections increases labor costs among Chinese listed firms. Using the Communist Party of China's Rule No. 18 as an exogenous shock that forces firms to lose their politically connected independent directors, we find that the disruption of political connections is associated with an increase in labor costs (both in terms of aggregate labor costs per firm and average labor costs per employee) and an increase in employee turnover. Such increases do not lead to labor productivity improvements, and cannot be attributed to changes in corporate policies or the composition of labor forces after Rule No. 18. We also find that firms with higher unemployment risk and skilled labor risk increase their labor costs to a larger extent. Our results are robust to alternative labor cost measures, controlling for potential confounding events, and alternative political connection channels. Our study shows an unintended labor market consequence—increases in labor costs—of political connection disruptions for firms that are adversely affected by such disruptions.

Spurred by the informational and disciplinary roles that the media fulfils, this study provides initial evidence on how higher media coverage is associated with a lower tendency of firms withholding bad news, proxied by stock price crash risk. Our main findings are robust to a battery of tests that account for endogeneity concerns including a difference-in-differences analysis based on newspaper closures that exogenously reduce media coverage and a regression-discontinuity design analysis based on the top band of Russell 2000 and lower band of Russell 1000 index stocks. Additional tests reveal that the negative relation between media coverage and stock price crash risk is concentrated within firms with more negative and novel news coverage and firms with higher litigation or reputation risks. We also find that media plays an important role in reducing future stock price crash risk when there is reduced monitoring by other external monitoring mechanisms such as external auditors, financial analysts, and institutional shareholders.

A firm with less redeployable assets, which are assets that have fewer alternative uses outside the firm, is more likely to borrow from banks than issue public debt. These findings are consistent with firms with less redeployable assets valuing the ability to renegotiate bank debt contracts instead of selling assets in the event of default. Consistent with this mechanism, firms with lower asset redeployability sell fewer assets following covenant violations. Our results contribute to work on the determinants of which debt markets a firm chooses to borrow from and the role that banks play as intermediaries.

In the presence of dominant shareholders, it remains uncertain whether the introduction of cumulative voting (CV) in board elections can elevate board representation of non-controlling substantial shareholders and curb the expropriation of minority shareholders by dominant shareholders. With hand-collected director-level data, we conduct DID-style analysis of China's CV reform. We find that non-controlling substantial shareholders cooperated in voting to raise their board representation, and CV implementation curbed tunneling activities and enhanced firm value. The results are especially strong in a subsample of firms whose second largest shareholder has a sufficiently large ownership proportion to elect her/his favored candidates onto boards.

Analyzing hand-collected data on the corporate subsidiary locations of all publicly listed firms in China, we find that “hometown firms,” firms headquartered in the hometown of the key political leaders of the province, set up more subsidiaries in their home provinces. This effect is stronger for hometown firms that are non-state owned or without political connections, and more prominent in a political turnover year and the previous year. After a hometown firm sets up more subsidiaries in a key political leader's home province, the firm will enjoy more preferential government policies such as those related to subsidies and taxes. We find evidence consistent with the positive externalities of these subsidiaries for other firms in the cities where they reside, i.e., local firms. The number of these subsidiaries is also positively associated with the local employment rate. Various causality tests and robustness checks confirm the validity of our results. Our results provide some of the first evidence on the importance of corporate subsidiary locations, showing political geography significantly influences corporate geography.

This paper examines the benefits and costs associated with rookie independent directors (RIDs) in Chinese public companies from 2008 to 2014. We find that RIDs attend more board meetings. Boards with more RIDs tunnel less to controlling shareholders, suggesting that RIDs are efficient monitors. However, in state-owned firms, the presence of RIDs is negatively associated with investment efficiency, suggesting a potential cost of appointing RIDs. Overall, firms with more RIDs have higher operating performance, especially when tunneling is a more common issue, when board experience is less important and when monitoring costs are relatively low.

This paper examines the benefits and costs associated with rookie independent directors (RIDs) in Chinese public companies from 2008 to 2014. We find that RIDs attend more board meetings. Boards with more RIDs tunnel less to controlling shareholders, suggesting that RIDs are efficient monitors. However, in state-owned firms, the presence of RIDs is negatively associated with investment efficiency, suggesting a potential cost of appointing RIDs. Overall, firms with more RIDs have higher operating performance, especially when tunneling is a more common issue, when board experience is less important and when monitoring costs are relatively low.

This study documents an unexplored corporate rent-seeking phenomenon in non-representative regimes—relocating headquarters (HQ) to the political center. Focusing on China, we find that firms that relocate their HQs to Beijing (the political center) enjoy increased political favors, but those that move to Shanghai or Shenzhen (the country's two main economic centers) do not. Although both groups of movers experience improved profitability, their sustainable growth paths diverge after relocating. Firm productivity and innovation worsen after relocating to Beijing, but improve after moving to Shanghai or Shenzhen. Overall, these findings support the argument that political favoritism benefits firms' profitability but impairs their productivity and innovation.

This study examines the impact of multi-tasking teams on fund performance. We find that while managerial multi-tasking has a negative impact on fund performance, teamwork can mitigate the adverse effect associated with managerial multi-tasking, which is indicative of superior performance of funds managed by multi-tasking teams. More importantly, it is the characteristics of the multitasking team that contribute to these superior results, which can be attributed to network cognitive diversity, suggesting that extended networks, facilitated by indirectly-connected managers via local teammates, can largely enhance the scale of cognitive diversity, thus generating significant gains through information pooling and integration. In assessing possible mechanisms for the observed superior performance, we find evidence of improved decision-making induced by network cognitive diversity through both transmission and sharing of value-relevant information, and speedy information diffusion.

This paper examines the link between non-executive employee ownership and the terms and pricing of corporate loans. We find that a one-standard-deviation increase in employee stock ownership is associated with 1.67% decrease in loan spreads and one fewer restrictive loan covenant. The negative effect of employee stock ownership on loan spreads remains significant when we use within-firm variation and perform an analysis with instrumental variables based on demographic characteristics to address the concerns of endogeneity. Further analysis reveals that employee stock ownership may affect loan spreads by improving corporate governance, curbing managerial risk-taking, reducing information asymmetry, and improving employee retention. In contrast, we find that employee ownership via stock options is associated with greater loan spreads, perhaps owing to their convex payoff structure. Overall, our results underscore the importance of the level and structure of employee ownership for pricing corporate loans.