This paper examines the impact of early Party school education for top executives on corporate innovation using Chinese listed SOEs data during 2003–2017. We find that SOEs with top executives who get a Party school degree engage in less innovative activities with the lower number of patent application and grants. The text description of the patents applied by the company is less similar to the text description of the company's main business operation, even filed patents are less capable of improving the future performance if SOEs' executives get a Party school degree. We further find that top executives with the Party school degree affect SOEs' innovation activities mainly through the government intervention originated from covert alumni relationship with local officials, which intensifies the executives' political promotion incentive. Our results are robust after we control for other managerial background characteristics, political connection, R&D expenditure and potential endogeneity. Our paper offers first evidence on the economic consequences of Party school education in China.

A key aspect of Chinese-style institutions is that the growth of the economy can be severely restricted by the adjustment and implementation of policy, leading to serious uncertainty in business practices. This paper investigates whether political connections help private firms obtain policy information ahead of public disclosure that would allow them to hedge against policy uncertainty. Using the quarterly data on non-financial private listed companies over 2007:Q1–2017:Q4, we find that the negative effect of policy uncertainty on fixed-asset investment is lower in politically connected firms than in non-connected firms, especially in industries with low asset reversibility and regions with a high degree of marketization. Further, a positive mitigation of policy uncertainty exists in firms whose top executives served as officials rather than deputies, and higher administrative as well as finance-related political connections show more information advantage. In addition, robust evidence is provided that controls the impacts of political connections on financing constraints, business performance and policy burdens, overcoming potential endogeneity, and the cash-holdings perspective. Our findings suggest that political connections are conducive to mitigate information asymmetry between private firms and policymakers in China.

Based on a reduced-form model of credit risk, we explore mispricing in the credit default swaps (CDS) spreads of North American companies and its economic content. Specifically, we develop a trading strategy using the model to trade out of sample market-neutral portfolios across the term structure of CDS contracts. Our empirical results show that the trading strategy exhibits abnormally large returns, confirming the existence and persistence of a mispricing. The aggregate returns of the trading strategy are positively related to the square of market-wide credit and liquidity risks, indicating that the mispricing is more pronounced when the market is more volatile. When implemented on the Markit data, the strategy shows significant economic value even after controlling for realistic transaction costs.