We examine whether adding more founding family members as firm owners and/or managers matters to corporate governance outcomes. Based on a sample of 1242 founder-controlled publicly traded Chinese private-sector firms, we find that more such family involvement is associated with lower volumes of related party transactions suspicious of expropriating shareholder wealth. The curtailing relation is stronger when family members own firm shares and/or serve as managers, and are more arm's-length relatives instead of immediate kin of the founders. The intra-family governance effects are stronger when firms are subject to weaker capital market disciplines or have more free cash under insider discretion. The overall evidence is consistent with founding family members' information advantages and ownership incentives making them more robust monitors of managerial decisions than other formal mechanisms, which help enforce shareholder rights in emerging markets.

Using a two-firm dynamic model, we investigate whether firms’ corporate policies are impacted by the peers’ idiosyncratic technology shocks. A firm hit by the positive idiosyncratic technology shock becomes more productive. Thus, it is better off. As a result, its Cournot competitor is worse off. Therefore, their optimal decisions are opposite to each other, leading to negative correlations between corporate policies across the firms. The empirical analysis using the idiosyncratic technology shocks and, to a lesser extent, CEO sudden deaths supports this prediction. Our analysis suggests that mimicking peers who alter their corporate policies due to idiosyncratic technology shocks destroys shareholder value.

There have been 128 defaults among U.S. CDS reference entities between 2001 and 2020. Within this sample, the five-year CDS spread is a significant predictor of corporate default in models with equity market covariates and firm attributes. This finding holds for forecast horizons up to 12 months, among financial and non-financial firms, within and without the great financial crisis, and is robust to the inclusion of corporate bond and equity options market information. A decomposition of the CDS spread into liquidity, physical default, and risk premium components shows that most of its predictive power for corporate default comes from the physical default component, both in- and out-of-sample. These results confirm the relevance of information contained in single-name CDS pricing to corporate default prediction.

Does government debt impede firm innovation? We address this question by examining the effects of the debt accumulated by local government financing vehicles (LGFVs) across Chinese prefectures between 2006 and 2012 on industrial firms’ R&D spending and patents. We find that government debt reduces firms’ R&D expenditures and lowers firms’ number of new patents. One plausible explanation is that government debt raises firms’ capital costs, which limits innovation activities. Consistently, we find that the innovations of firms that are more likely to be financially constrained – small firms and firms with low cash flow – are more affected by the expansion of government debt. Our results imply that although government deficit spending may stimulate the economy in the short run, it could have negative repercussions for economic productivity in the longer run.