Using the staggered intercity but within-province deregulation of local banks in China as exogenous variations, we evaluate the effect of banking integration across geographical segmentation on capital misallocation. Based on an administrative data set comprehensively covering Chinese manufacturing firms, we find that for firms with initially high marginal revenue products of capital (MRPK), the integration increases physical capital by 19.3%, and reduces MRPK by 33.1% relative to low MRPK firms. Our findings are more pronounced for non-state-owned firms and firms with higher exposure to integrated banks. Integration also significantly increases the responsiveness of firms’ investments to deposit shock on other cities within the same province.

Although the impacts of air pollution on individual health are well documented, it is unclear whether and how air pollution affects firm strategy on employee treatment. This study examines this issue in the context of China and presents strong evidence that air pollution significantly enhances employee treatment. To establish causality, we further instrument for air pollution using thermal inversions, introduce a regression discontinuity approach relying on the Huai River boundary, and a falsification test. Monetary compensation, safety security, and career training jointly determine our findings. Two plausible mechanisms are corporate brain drain and public attention. Our results are more pronounced for non-state-owned firms, and firms with less financial constraints, intensive R&D or competition, and increased job market opportunities. Overall, we highlight that air pollution is an important noneconomic factor driving firms' human capital and employee treatment strategy.

Using a unique proprietary account-level trading dataset in China, we investigate how active information acquisition alleviates price-based return comovement, a typical anomaly in stock splits. We find that: 1) individual trading drives the comovement and the trading correlation between split stocks and the low-price portfolio increases significantly after splits; 2) individuals can learn the firm fundamentals through information acquisition, which effectively alleviates their categorized bias; and 3) the role of information acquisition is more significant in environments characterized by greater uncertainty. Our results are robust to different specifications and alternative measures. Taken together, this paper emphasizes the important role of information acquisition in alleviating behavioral bias and improving decision-making.

Recent evidence in the U.S. and Europe indicates that stocks with high maximum daily returns in the previous month, perform poorly in the current month. We investigate the presence of a similar effect in the emerging Chinese stock markets with portfolio-level analysis and firm-level Fama–MacBeth cross-sectional regressions. We find evidence of a MAX effect similar to the U.S. and European markets. However, contrary to U.S. and European evidence, the MAX effect in China does not weaken much less reverse the anomalous idiosyncratic volatility (IV) effect. Both the MAX and IV effects appear to independently coexist in the Chinese stock markets. Interpreted together with the strong evidence of risk-seeking behaviour among Chinese investors, our results partially support the suggestion that the negative MAX effect is driven by investor preference for stocks with lottery-like features.

We examine the improvements in forecast accuracy that result from analysts' visits to listed companies. We find that company visits significantly enhance the accuracy of the analysts' earnings forecasts for those companies. The benefit from company visits is more pronounced for companies that are more neglected or less accessible and for brokerage firms that face less pressure for optimistic forecasts from buy‐side clients. Our results are robust and remain significant after controlling for endogeneity and selection bias. Overall, our findings show that private interactions with company management provide analysts with an informational advantage and suggest that company visits facilitate the mosaic approach to information acquisition.

This paper investigates the impact of higher education on corporate innovation. To establish causality, we exploit a policy-induced exogenous shock in the supply of Chinese college-educated labor starting in 2003. Using a difference-in-differences approach, we find that Chinese firms in skilled industries generate better innovation outcomes as measured by patents and citations than those in unskilled industries. This effect is more pronounced among firms headquartered in a province with more science and engineering college graduates, young firms that are more likely to hire young graduates, and firms located near universities. Moreover, higher education expansion increases a firm's innovative human capital in terms of the number of educated employees and inventors. Finally, we show that technological innovation is a mechanism through which higher education affects productivity growth and, thus, the economy.

Using CEOs' early-life experience during China's Cultural Revolution (1966–1976) to distinguish the trust level of CEOs, we employ a difference-in-differences identification strategy to show that the CEO's trust level exhibits significantly positive impacts on corporate innovation. We then use an alternative dataset from the survey of the Chinese Enterprise Survey System in 2000 to measure the trust at the firm level and subsequently achieve highly consistent findings. We further demonstrate that the substitution effect between informal and formal institutions also exists in relation to the impact of trust on innovation. Trust plays a more important role in promoting innovation when formal institutions are lacking. Overall, this study enriches our understanding on the effects of the CEO's trust level on corporate innovation and provides a micro-level evaluation of China's Cultural Revolution in the long run.

This paper investigates the impact of rank-and-file employees on corporate innovation. We show that paying higher relative wages to rank-and-file employees promotes better innovation outcomes in terms of patent quantity and quality. This effect is more significant among firms with large proportions of skilled employees, industries with high levels of R&D intensity, provinces with competitive local labor markets, and non-SOEs. Further analyses reveal that efficiency wages can serve as an underlying economic channel that fosters innovation by retaining and attracting valuable human capital and stimulating their working enthusiasm. Finally, we show that technological innovation is a mechanism through which rank-and-file employees affect productivity growth and thereby affect the economy.