This study investigates the relationship between internet penetration and venture capital (VC) investment in China. Exploiting staggered inclusion in demonstration cities under the Broadband China strategy as a positive shock to internet penetration, our difference-in-differences analysis shows that this policy shock results in an increase in VC investments in demonstration cities relative to others. Moreover, the increase in VC investments is concentrated in early stage financing and young start-ups. In terms of VC fund sources, we find a stronger effect on foreign and independent VCs. Our mechanism analysis suggests that the effect of the broadband rollout is mainly driven by cities with higher ex-ante costs of information acquisition and that such costs are reduced by the improvement of internet-based network infrastructure. Finally, we provide additional evidence on the benefits to established companies by showing that broadband rollout improves the information environment of listed firms. Our study sheds new light on the economic consequences of infrastructure development that reduces information acquisition costs in China.

Using a difference-in-differences approach that relies on the exogenous increase in options trading activity generated by the Securities and Exchange Commission's Penny Pilot Program, we find a negative causal effect of options trading on earnings management. With a reduced magnitude of discretionary accruals, the pilot firms are less likely to marginally beat earnings targets and less likely to have financial misstatements during the pilot period. Cross-sectional analysis shows that the effects are more pronounced among firms with a small or less independent board or a small audit committee. Furthermore, the pilot firms receive more market attention, and their stock price efficiency improves more than the nonpilot firms during the pilot period. The evidence is consistent with the argument that active options trading enhances market scrutiny of firms' reporting behavior, improving financial reporting quality and price efficiency.

This paper investigates the local peer effects of corporate social responsibility (CSR). We find that a firm's CSR engagement comoves with that of other firms headquartered nearby. The results are robust when considering the nonlocal dominant industry CSR portfolio and different cross-region sensitivities to macro shocks. Moreover, the CSR of firms that change their headquarters location experiences an increase (decrease) in comovement with the CSR of firms in the new (old) location. We further explore several channels through which the local CSR comovement is motivated. We show that local CSR comovement is mainly driven by a firm's incentives to access financing. Besides, we find weak evidence that firms comove in CSR in order to set a positive image to the public and our findings do not support the agency channel of the local peer effects of CSR.

This paper explores how forced resignations of politically connected independent directors (political IDs for short) affect the performance of corporate social responsibility (CSR). Using a Communist Party of China regulation that forbids political officials from sitting on boards as an exogenous shock, this paper finds that the forced resignations of political IDs are associated with a decrease in firms' CSR performance. We further find that such reductions are not attributable to decreases in capital and knowledge resources. However, the negative association between political IDs' forced resignations and CSR performance is more prominent for firms under more political pressure, such as when political IDs are high-ranking incumbents, when firms located in the province with a high level of government intervention, or in polluting industries, and when firms have no government shareholdings. Therefore, we conclude that the reduction in CSR performance is due to the release of political pressure after the resignations of political IDs. Our results are robust to alternative CSR measures, varied sample periods, and sample selection bias correcting. The results of placebo tests also confirm our findings. Our study shows that political pressure imposed by politicians on firms is an important determinant of CSR.

We show that firms grow faster than their industry rivals if there are credit default swaps (CDS) referencing their debt. Using multiple approaches to addressing endogeneity concerns including synthetic difference-in-differences and novel instrumental variables, we find the product market effects of CDS likely to be causal. We provide evidence for two mechanisms driving the CDS effects: the reduction of creditor monitoring and the elevation of shareholder risk-taking. A detailed analysis of product market dynamics reveals that CDS firms achieve faster growth by reducing markups, developing new products, and encroaching on rivals' product space. Over the long run, these strategies increase industry concentration and help profitability growth. Consistent with the classic predation theories, our findings suggest that financial innovations that change incentive problems in financial contracting can have real effects on product market outcomes.

Using a quasi-natural experiment based on the introduction of Rule 18, a key component of China's anti-corruption campaign, this paper finds that the accuracy of analysts' earnings forecasts, especially for firms whose headquarters are located in regions with less developed markets, exhibits improvement after Rule 18. We investigate plausible underlying mechanism and find that after Rule 18, firms improve the quality of information conveyed by reported earnings, become more willing to respond to investors' online questions, and are more likely to have their chairpersons or CEOs attend meetings with analysts during analyst site visits. In addition, compared to the pre-Rule 18, the market reacts more positively to analyst earnings forecast reports for firms that lost political connections due to Rule 18 relative to those for other firms. There is also a decrease in stock price synchronicity after Rule 18. However, these effects of Rule 18 last only one year or two, and disappear three years after the policy. These findings suggest that in the short period after the policy, firms increase their information disclosure to the market. Regarding the disappearance of these effects after a longer period of policy implementation, one possibility is that firms adapt to the new rules over time, finding more covert ways to seek rents and re-establish political ties.

This paper investigates the effect of social connections on outside director turnover before stock performance crashes. We find that outside directors who are more connected with managers through social ties are more likely to leave the firm before a crash. The positive association between turnover and outside director connectedness is robust to different model specifications, measures of crashes and turnovers, and sample selection criteria. Moreover, we document that this positive association is moderated by the concentration of the outside directors' social capital within the current firm and the availability of alternative information channels to the outside directors. Our findings contribute to the literature on the supply side incentives of outside directors by revealing information sharing through social connections as a mechanism through which outside directors assess their firms' future performance and make turnover decisions before crashes.

From a policy perspective, university spin-offs (USOs) with venture capital (VC) investment are most promising because they are growth-oriented and contribute most prominently to economic growth. Hence, effective policies should consider the motivation of VC investment in USOs. By employing a manually collected novel database that includes all listed high-tech USOs and related VC investment activities prior to initial public offering (IPO) in China over the past three decades, we observe a close relationship between a multi-layered second-tier stock market and a vibrant VC market for USO financing. We find that USOs receive less investment from government VCs and mixed-VC syndicates and receive their investment in an earlier stage than non-USOs but that private VCs have no funding bias against USOs. The result implies the presence of crowding-in effect of government VCs in the context of USO financing. Moreover, VC investment in USOs is more pronounced in deals that have a higher initial equity commitment of academic founders and a noncontrolling strategy, highlighting the importance of delivering “value”, “commitment”, and “trust” signals in winning VC funding. Finally, as private VCs in the form of limited partnerships behave like typical pre-IPO-stage investors, they barely demonstrate any significant preference over these factors.

Regulatory and technological (RegTech) developments have been changing the nature of financial markets in recent decades. This paper documents the real effects of RegTech in the market of corporate control. Exploiting the staggered implementation of the EDGAR system from 1993 to 1996 as quasi-exogenous RegTech shocks, we find that RegTech developments reduce firm acquisitiveness, especially for growth firms, solo-bidder deals, and stock-based acquisitions. Our main findings still hold when employing the stack-cohort approach to address concerns regarding biased staggered DiD estimators. In addition, EDGAR implementation discourages informed trading and lowers the acquirers' announcement returns. Overall, our deal-level analyses show how RegTech development matters for firm investment decisions with more granularities. Our paper differs from but complements recent empirical evidence that EDGAR implementation increases the level of overall investment, suggesting that dampened managerial learning induces firms to switch from highly risky and uncertain projects (M&As) to routine projects with less uncertainty (capital expenditures).

We examine how the mandatory adoption of extended auditor's reports (EARs) affects managerial bad-news hoarding through the lens of stock price crash risk. Relying on the UK's auditing standard change in 2013 as a quasi-natural experiment, we document a crash risk reduction for firms that were required to adopt EARs, relative to firms that were not so required. The crash risk reduction is related to EARs' disclosure of risks of material misstatement in revenue recognition. The negative effect of EARs adoption on crash risk is more pronounced for firms with scant public information and firms with non-Big-4 or non-industry-specialist auditors. EARs adoption induces firms to disclose more smaller pieces of negative information without changing firms' accruals management. Taken together, our results suggest that EARs adoption dampens bad-news hoarding by managers.