We examine whether adding more founding family members as firm owners and/or managers matters to corporate governance outcomes. Based on a sample of 1242 founder-controlled publicly traded Chinese private-sector firms, we find that more such family involvement is associated with lower volumes of related party transactions suspicious of expropriating shareholder wealth. The curtailing relation is stronger when family members own firm shares and/or serve as managers, and are more arm's-length relatives instead of immediate kin of the founders. The intra-family governance effects are stronger when firms are subject to weaker capital market disciplines or have more free cash under insider discretion. The overall evidence is consistent with founding family members' information advantages and ownership incentives making them more robust monitors of managerial decisions than other formal mechanisms, which help enforce shareholder rights in emerging markets.

Using a two-firm dynamic model, we investigate whether firms’ corporate policies are impacted by the peers’ idiosyncratic technology shocks. A firm hit by the positive idiosyncratic technology shock becomes more productive. Thus, it is better off. As a result, its Cournot competitor is worse off. Therefore, their optimal decisions are opposite to each other, leading to negative correlations between corporate policies across the firms. The empirical analysis using the idiosyncratic technology shocks and, to a lesser extent, CEO sudden deaths supports this prediction. Our analysis suggests that mimicking peers who alter their corporate policies due to idiosyncratic technology shocks destroys shareholder value.

This study analyzes whether corporate financing policies of the US industrial firms have depended on borrowing costs during the last forty years. The results show that the impact is either zero or slightly negative. Even in the latter case, the results are economically insignificant. Overall, our findings suggest that firms do not adjust their capital structures based on interest rates, except when market participants expect that real gross domestic product growth will be negative. Using a dynamic partial equilibrium model, we show that relatively high leverage adjustment costs are able to explain the weak negative relation between interest rates and a firm's leverage. Our results are also consistent with the view that firms target debt-to-asset ratio rather than debt level.

This paper examines how credit risk spillovers affect corporate financial flexibility. We construct separate empirical proxies to disentangle the two channels of credit risk spillovers—credit risk contagion (CRC), where one firm's default increases the distress likelihood of another; and product market rivalry (PMR), where the same default strengthens the position of a competitor. We show that firms facing greater CRC have weaker subsequent operating performance and must contend with less favorable bank loan terms. Meanwhile, they accumulate more cash by issuing equity, selling assets, and reducing investment and payout. In contrast, PMR generally has opposite, albeit weaker, effects. Our findings suggest that credit risk spillovers, especially CRC, play an important role in corporate liquidity management.