We develop a new test for conditional moment restrictions via nonparametric series regression, with approximating functions selected by Lasso. A key novelty of our approach is to account for the effect of the data-driven selection, yielding a new critical value constructed on the basis of a nonstandard truncated-Gaussian asymptotic approximation. We show that the test is correctly sized and attains a well-defined sense of adaptiveness that may result in better power than existing methods. The improvement afforded by the new test is demonstrated in a Monte Carlo study and an empirical application on the conditional evaluation of inflation forecasts.

The Split-Share Structure Reform granted legitimate trading rights to the state-owned shares of listed state-owned enterprises (SOEs), opening up the gate to China׳s secondary privatization. The expectation of privatization quickly boosted SOE output, profits, and employment, but did not change their operating efficiency and corporate governance. The improvements to SOE performance are positively correlated to government agents’ privatization-led incentive of increasing state-owned share value. In terms of privatization methodology, the reform adopted a market mechanism that played an effective information discovery role in aligning the interests of the government and public investors.

This paper examines how government intervention affects firms' investment and investment efficiency, focusing on the world's largest economic stimulus package (ESP) during the 2008 global financial crisis period. The RMB four trillion ESP aimed to restore the economy by promoting investment in priority areas. Thus it provided an exogenous shock to firms' investment environment and exacerbated the impact of government intervention on firms' investment and investment efficiency. We use propensity score matching to match government-intervened firms with their controls to reduce the endogeneity issue of government intervention. Our difference-in-differences analysis shows that government-intervened firms invested more than control firms. Further analysis shows that the source of funding for investment was mainly from bank loans rather than internal cash flows. However, the post-investment performance was poor. We find that the investment efficiency of government-intervened firms decreased and government-intervened firms overinvested after the ESP. Our results are robust to alternative model specifications and placebo tests. The findings suggest that government intervention can play a negative role in government-intervened firms.

We use a unique quasi-experiment–spillovers from the imposition of purchase restrictions on local housing to nearby unregulated cities–to study the effects of out-of-town housing demand on house prices and consumer spending. While these restrictions effectively stymied the surge in local house prices, they induced capital flight and sharp abnormal increases in house prices in nearby unregulated cities. The effect of the house price increases on consumer spending is positive in the aggregate, but echoing Favilukis and Van Nieuwerburgh (2021), is redistributive, that is, negative for renters and positive for homeowners.

Using data from a major online peer-to-peer lending platform, we document that, due to time pressure, investors appear to focus on interest rates and only partially account for credit ratings in their decisions. The effect is stronger for mobile-based investors than for PC-based ones. Our evidence suggests that this variation is caused by the difference in information content on the interfaces rather than differences in the devices’ physical attributes per se. Investors improve their decisions by slowing down and paying more attention to credit ratings after experiencing a loan default firsthand, but not after observing others experiencing defaults.

Using manually matched data from US-China trade dispute records and Chinese customs trade data, this study assesses the impact of the US-China trade disputes on corporate earnings management (EM) of Chinese listed companies. We find a significant reduction in accrual-based EM in firms affected by the retaliatory tariff changes due to the trade disputes. Furthermore, the impact of this shock goes beyond the directly affected firms and spreads along the supply chain as well as through block shareholding. Importantly, after excluding alternative explanations such as government subsidies, or managerial slack caused by government implicit guarantees, our results remain robust. Our mechanism analysis suggests that in response to the trade disputes, contracting parties seek transparency to alleviate information asymmetry, therefore, the increased demands for high earnings quality from creditors explain the impact of trade disputes on EM. We further find that trade disputes mainly reduce downward earnings manipulations, with no significant impact on upward EM or real EM. Additionally, the trade disputes effect is weaker in firms with political connections and effective monitoring mechanisms. Overall, this study highlights that firms strategically manage the disclosure of accounting information under uncertainties, where contracting demand is a significant factor explaining why firms enhance earnings quality in reaction to trade disputes.

Audits of internal control over financial reporting (ICFR) are typically “integrated” with the audit of the financial statements (FSs)—both audits are conducted by the same audit firm, which designs procedures to satisfy the objectives of both audits simultaneously. A common assumption is that integrating the two audits is more effective and efficient than performing them separately. However, this assumption has not been tested empirically. Using a sample of Chinese companies that employ different audit firms for their FS and ICFR audits (i.e., nonintegrated auditors), we find evidence that challenges this assumption. Specifically, we find ICFR audit quality is higher for nonintegrated audits compared to integrated audits. Moreover, total audit fees are lower for nonintegrated audits, despite higher ICFR audit fees.

Using two natural field experiments, we examine how warning individual retail borrowers that their loan performance will be reported to a public credit registry before and after the loan take-up affects their borrowing behavior. We show that credit warnings reduce default rates by 3.7 to 7 percentage points and increase loan take-up rates by 4.1 percentage points, which suggests that credit warnings benefit both lenders and borrowers. The main drivers appear to be borrowers’ anticipation of a reduction in lenders’ informational rents and improved repayment incentives. Moreover, the reduction in default rates is comparable for borrowers who receive the credit warning before and after the loan take-up. As credit warnings received before but not after a loan take-up can affect the borrower pool, and thus the overall credit risk of the pool, the results suggest that credit warnings have little net effect on the pool’s credit risk due to selection.