We examine the determinants and consequences of stock option compensation to directors of state-controlled Chinese firms that are incorporated outside China and listed in Hong Kong, referred to as state-controlled Red Chip firms, over the period 1990–2005. We find that state-controlled Red Chip firms granted directors a significant number of stock options in response to the demand of foreign investors. However, state-controlled Red Chip firms forced the directors to forfeit a significant percentage of their vested in-the-money stock options due to a conflict between the high-powered stock option compensation and state-controlled Red Chip firms' unique managerial labor market. We find little evidence that directors' stock option compensation changed the behavior of state-controlled Red Chip firms. Overall, our results are consistent with the media's allegation that the stock options granted to directors of many, if not all, state-controlled Red Chip firms are not genuine compensation.

Utilizing the Trade Reporting and Compliance Engine (TRACE) setting as an exogenous shock to bond market transparency, we find that improved bond market transparency leads to lower crash risk in the stock market, consistent with increased information spillover from the bond market into the stock market. Results from the Path analysis suggest that bond market transparency affects stock price crash risk not only directly, but also indirectly through its effects on management guidance, analyst forecasts, and media reports. We also find that the mitigation effect of bond market transparency on stock price crash risk is more pronounced for firms with higher default risk bonds, lower institutional stock ownership, and more opaque financial reporting. Overall, our findings suggest that increased bond market transparency following TRACE generates a positive externality in reducing crash risk in the stock market.

We investigate the relationship between societal trust and managers' decisions to voluntarily issue earnings forecasts. We reason that managers are more likely to issue earnings forecasts in high-trust countries than in low-trust countries because investors view these voluntary disclosures as more credible information about the firm's future profitability. We find evidence consistent with these predictions, suggesting that societal trust fosters corporate voluntary disclosure. We also document that societal trust works as a substitute for country-level formal institutions in terms of its implications for management earnings forecast (MEF) issuance. Additionally, we find a stronger relationship between firm-level commitment to credible disclosure and MEFs in low-trust countries, suggesting that country-level societal trust relates to the effectiveness of firm-level credibility-enhancing mechanisms. Finally, we show that firms from countries with higher societal trust issue more precise and accurate MEFs that contain more information about multiple items.