This paper examines an unintended response to the one-child policy in China: births of twins. Analysis of population census data shows that the one-child policy has accounted for more than one-third of the increase in the reported births of twins since the 1970s. Investigation using birth spacing with prior births and height difference within twins suggests that the increase in the birth of twins is partly due to parents reporting regularly spaced children as twins to avoid the policy violation punishment. The study highlights the possibility of individual behavioral response to undesirable government policies and the potential social consequences.

Unique features and market frictions can lead to idiosyncratic pricing for some US Treasury securities. This study uses a linear programming (LP) model to measure aggregate idiosyncratic pricing of T-notes and T-bonds from 1980 to 2016. We document an average idiosyncratic pricing of $0.11 per $100 par, as compared to an average bid-ask spread of $0.08. Further, idiosyncratic pricing declined dramatically from the early 1980s to the 2010s. Empirical evidence suggests that the 1986 Tax Reform Act, increasing issue sizes and improving market liquidity contribute to the decline. At the individual security level, we identify factors contributing to and mitigating idiosyncratic pricing.

We examine the association between CEO birthplace proximity and financial misconduct. We find that CEOs managing firms near their birthplaces (home CEOs) are associated with less financial misconduct compared to other CEOs. This association is not attributable to differences in corporate governance. The relationship strengthens in areas with a strong local investment presence and greater religious commitment as well as among CEOs with longer tenures in their home state. Our findings are robust to addressing potential selection and omitted variable biases as well as to conducting multiple robustness tests, including analyses of involuntary CEO changes and headquarters relocations. We also find a similar association for CFOs, with firms employing home CFOs exhibiting less financial misconduct.

During the past decade, new regulations have been adopted to improve audit committee effectiveness. Prior research has generally provided evidence in support of these regulations and suggests that a more independent and expert audit committee is more effective. We posit that CEO power reduces or even eliminates the improvements in audit committee effectiveness resulting from independent and financially expert committee members. Thus, CEO power may result in an audit committee that appears effective in form but is not in substance. We construct a composite index for CEO power by combining ten CEO characteristics and employ the incidence of internal control weaknesses as a proxy for audit committee monitoring quality. Since all the firms in our sample have completely independent audit committees, we use financial expertise to examine the impact of CEO power on audit committee effectiveness. We find that, when CEO power is low, audit committee financial expertise is negatively associated with the incidence of internal control weaknesses. However, as CEO power increases, this association monotonically weakens. When CEO power reaches a sufficiently high level, this association is no longer negative. The moderating effect of CEO power on audit committee effectiveness is more prominent when the CEO extracts more rents from the firm through insider trading. Our results are not driven by the CEO 's involvement in director selection. Our paper suggests that more expert audit committees in form do not automatically translate into more effective monitoring. Rather, the substantive monitoring effectiveness of audit committees is contingent on CEO power.

We investigate the relationship between internal governance and firms' innovation. We hypothesize that internal governance stemming from the difference in expected employment horizons between a CEO and her subordinate executives improves a firm's innovation. Using the age difference between a CEO and her subordinate executives as the primary measure of internal governance, we find a strong positive relationship between internal governance and firms' innovation output, and scientific and economic values. We show that the positive relation is causal and robust based on empirical tests including exogenous variation in internal governance resulting from non-forced CEO turnovers. We further show that the relationship between internal governance and innovation is more pronounced when external governance is weaker and when subordinate executives are expected to have more influence on the board. Cross-sectional analysis shows that internal governance spurs innovation in younger firms, firms led by generalist CEOs, and when the likelihood of insider successions is higher.

Using a broad sample of earnings announcements, we find a monotonic increase in the spread between call and put implied volatilities as it gets closer to the earnings announcement date. The steady build-up of volatility spread in the days leading up to the announcement date, coupled with the predictive power of cumulative abnormal implied volatility spread on subsequent announcement returns, suggests that informed traders are the driving force behind the option market activities prior to earnings announcements. Such informed trading, as proxied by the abnormal implied volatility spread, increases rather than decreases the stock market response to earnings announcements after controlling for an array of firm and announcement characteristics. This effect is most pronounced when the pre-earnings option trading volume is heightened. Overall, our findings lend strong support to the notion that informed options trading immediately before earnings announcements helps alleviate the stock market under-reaction to earnings announcements and make it closer to a complete response.

Recent research suggests that insiders’ incentives for capturing cash flows affect price formation process in which insiders are inclined to withhold good news and to accelerate the release of bad news (Jin and Myers, 2006). We investigate whether insiders’ incentives for private control benefit, proxied by control-ownership wedge, affect firm-specific return characteristics. We find that control-ownership wedge is negatively related to the likelihood of positive return jumps and positively related to the extent of asymmetric market reaction to good news rather than to bad news. Overall, our results support the notion that corporate insiders increase opaqueness and withhold good news in order to capture unexpected cash flow.

This study examines whether insiders’ incentives for private control benefits affect investment sensitivity to stock price. While Chen et al. (2007) link stock price informativeness to firms’ learning from the stock market, we offer an alternative agency-cost based explanation. Using a total of 2822 firms from 22 countries in East Asia and Western Europe, we document a strong negative association between control-ownership wedge and investment-q sensitivity, suggesting that insiders’ incentives for private control benefit reduce their propensity to listen to the market. Furthermore, the negative impact of wedge on investment-q sensitivity is primarily driven by sub-optimal investments. Overall, we provide evidence that agency problem is an important factor that determines the learning from the stock market in capital allocation.