Economic institutions that impede factor mobility become more costly when an economy experiences substantial transitions such as trade liberalization. I study how trade triggers changes in labor institutions that regulate internal migration in the context of China’s Hukou system. Using a newly collected dataset on prefecture-level migration policies, I document an increase in promigrant regulations following WTO entry and estimate the impact of prefecture-level tariffs on exports on migration regulations from 2001 to 2007. I find that regions facing more export market liberalization enacted more migrant-friendly regulations.

This study proposes a rational expectations equilibrium model of crises and contagion in an economy with information asymmetry and borrowing constraints. Consistent with empirical observations, the model finds: (1) Crises can be caused by small shocks to fundamentals; (2) market return distributions are asymmetric; and (3) correlations among asset returns tend to increase during crashes. The model also predicts: (1) Crises and contagion are likely to occur after small shocks in the intermediate price region; (2) the skewness of asset price distributions increases with information asymmetry and borrowing constraints; and (3) crises can spread through investor borrowing constraints.

The literature develops the theoretical rationale for the Value of Tax Shields (VTS) on the following misguided basis: it uses required rate of return on assets (or WACC) as the discount rate for capitalization, it uses expected rate of return on assets (ROA¯ or ROI¯) as a proxy for WACC, and it is not aware of (1) the influence of the difference between “expected rate of return on equity” and “Required rate of Return On Equity (RROE)” on VTS, (2) the fact that RROE is equity normal profit which is not measurable, (3) the economic content of the weight attached to the VTS capacity, and (4) the co-definition of “tax shield and leverage return.” This paper takes tax shields and leverage return as a system and provides a knife, “interest rate/ROI=Cost/Price”, to slice the VTS capacity into “earned VTS” and “unearned VTS.” Earned VTS is VTS. Unearned VTS is the value of leverage return, because leverage return is tax payable.

I examine how revenue recognition timing affects attributes of reported revenue, using a sample of software firms that adopted Statement of Position 91-1 in the early 1990s. I find early recognition yields more timely revenue information, as evidenced by higher contemporaneous correlation with information impounded in stock returns. However, such early recognition diminishes the extent to which accounts receivable accruals map into future cash flow realizations and lowers the time-series predictability of reported revenue. Overall, the results suggest early revenue recognition makes reported revenue more timely and more relevant, but at the cost of lower reliability and lower time-series predictability.

We analyze the impact of emerging-market sovereign bonds on emerging-market corporate bonds by examining their spanning enhancement, price discovery, and issuance effects. We find that the effect of spanning enhancement is positive and large; over one-fifth of the information in corporate yield spreads is traced to innovations in sovereign bonds; and most of these effects are due to discovery and spanning of systematic risks. Further, issuance of sovereign bonds, controlling for endogeneity of market-timing decisions, lowers corporate yield and bid-ask spreads. Our results indicate that sovereign securities act as benchmarks and suggest they promote a vibrant corporate bond market.

This paper examines whether and how individual auditors are disciplined for audit errors. Taking advantage of the long history of auditor identity data from China, we find that signing auditors with client restatements are likely to lose the privilege of signing the audit reports of public clients. However, auditors can avoid this consequence by issuing a modified audit opinion to warn of the potential misstatement. We show that auditors are more likely to be disciplined when their firms operate in less concentrated audit markets. Finally, we find positive outcomes from the disciplinary action of the audit firms. Firms that discipline their auditors for restatements have a larger decrease in the rate of client restatements and a larger increase in market share, compared to nondisciplining firms. Their clients have a higher earnings response coefficient after the disciplinary action. In summary, our results suggest that individual auditors in China can face career setbacks when they produce poor quality audits.

We study effort and risk-taking behaviour in an economy with a continuum of principal–agent pairs where each agent exerts costly hidden effort. Principals write contracts based on both absolute and relative performance evaluations (APE and RPE, respectively) to make individually optimal risk–return trade-offs but do not take into account their impact on endogenously determined aggregate variables. This results in contractual externalities when these aggregate variables are used as benchmarks in contracts. Contractual externalities have welfare changing effects when principals put too much weight on APE or RPE due to information frictions. Relative to the second best, if the expected productivity is high, risk-averse principals over-incentivize their own agents, triggering a rat race in effort exertion, resulting in over-investment in effort and excessive exposure to industry risks. The opposite occurs when the expected productivity is low, inducing pro-cyclical investment and risk-taking behaviours.

By considering banks as portfolios of assets in different locations, we study how real estate shocks are transmitted across bank’s business areas, while controlling for local demand shocks and bank location-specific factors. Affected banks substantially alter their loan portfolios: we find evidence of real estate price declines affecting both real estate and non-real-estate types of lending. Banks also roll over and fail to liquidate problematic loans, while accumulating more nonperforming loans. These results provide evidence of internal contagion in real estate shocks within banks.

A four-factor model with two "mispricing" factors, in addition to market and size factors, accommodates a large set of anomalies better than notable four-and five-factor alternative models. Moreover, our size factor reveals a small-firm premium nearly twice usual estimates. The mispricing factors aggregate information across 11 prominent anomalies by averaging rankings within two clusters exhibiting the greatest return co-movement. Investor sentiment predicts the mispricing factors, especially their short legs, consistent with a mispricing interpretation and the asymmetry in ease of buying versus shorting. A three-factor model with a single mispricing factor also performs well, especially in Bayesian model comparisons.