This paper investigates the effect of management-level professional ties between suppliers and customers on the sustainability of business partnerships. We find that the presence of cross-firm professional ties between directors and senior executives along the supply chain significantly reduces the probability of relationship termination around customers’ industry negative shocks and during financial crises. The results are robust using professional-tie strength as an alternative measure. Exploring contingency effects, we find that, for suppliers who lack R&D, face high competition, are smaller in size, or are less important to customers in terms of sales, such professional ties are more helpful in sustaining such relationships. Furthermore, we find that professional ties also significantly reduce firm risk during periods of market turbulence. Taken together, our results suggest that professional ties along the supply chain can facilitate information flow and build mutual trust, which can lead to healthy long-term relationships and can help firms survive economic and industry downturns.

As a part of the ongoing liberalization of the marketplace, Chinese regulators adopted the guideline called “Regulation of Equity Incentive Plans (trial)” to allow firms to provide employee incentives through employee stock option plans. Firms began initiating the plans in 2006. We investigate the impact of these plans on firm performance by comparing option-award firms with similar non-award matching firms. The change in ROE for the option-award firms is significantly higher than the matching firms. This is primarily due to their performance holding up better during the global financial crisis while the matching firms’ performance deteriorates. The stock price of these firms shows a positive reaction to the announcement, but no long-term abnormal returns. The better ROE performance for option-award firms is strong for subsets of the sample that are likely to benefit more from incentivized employees; specifically, privately owned firms, firms with higher board independence, and smaller firms. After various robustness tests, we conclude that the higher performance comes from the employee incentives, rather than earnings manipulation, a replacement of cash compensation, a binding of employees to executives, or gaming vesting periods.

Abstract This study examines whether religiosity at the county level is associated with future stock price crash risk. We find robust evidence that firms headquartered in counties with higher levels of religiosity exhibit lower levels of future stock price crash risk. This finding is consistent with the view that religion, as a set of social norms, helps to curb bad-news-hoarding activities by managers. Our evidence further shows that the negative relation between religiosity and future crash risk is stronger for riskier firms and for firms with weaker governance mechanisms measured by shareholder takeover rights and dedicated institutional ownership.

Abstract This study investigates whether the existence or strength of any misreaction in the options market is affected by investor sophistication and investor sentiment. Based on a unique data set of the complete history of all transactions in the Taiwan options market, we find that individual investors exhibit significant misreaction to information and that this misreaction becomes stronger during periods of high investor sentiment. In addition, more active or aggressive individual investors always exhibit misreaction and do not learn from their past mistakes. Our empirical results are robust to alternative measures of investor sentiment and definitions of long- and short-term horizons.

We examine 20 years of direct private equity investments by seven large institutions. These direct investments perform better than public market indices, especially buyout investments and those made in the 1990s. Outperformance by the direct investments, however, relative to the corresponding private equity fund benchmarks is limited and concentrated among buyout transactions. Co-investments underperform the corresponding funds with which they co-invest, due to an apparent adverse selection of transactions available to these investors, while solo transactions outperform fund benchmarks. Investors’ ability to resolve information problems appears to be an important driver of solo deal outcomes.

Using a large sample of U.S. public firms, we find robust evidence that short interest is positively related to one-year ahead stock price crash risk. The evidence is consistent with the view that short sellers are able to detect bad news hoarding by managers. Additional findings show that the positive relation between short interest and future crash risk is more salient for firms with weak governance mechanisms, excessive risk-taking behavior, and high information asymmetry between managers and shareholders. Empirical support is provided showing that the relation between short interest and crash risk is driven by bad news hoarding.

Abstract This paper compares the value of political ties and market credibility in China by examining the consequence of corporate scandals. We categorize Chinese corporate scandals by whether the scandal is primarily associated with the destruction of (i) the firm's political networks (political scandals), (ii) the firm's market credibility (market scandals), or (iii) both (mixed scandals). Consistent with our hypothesis that scandals signaling the destruction of political ties are associated with greater losses in firm value than scandals signaling the destruction of market credibility, we find that the stock market reacts more negatively to political and mixed scandals than to market scandals. In addition, the greater negative market reactions associated with political and mixed scandals are primarily driven by firms that rely more on political networks. We also find that, compared to market scandals, political and mixed scandals lead to larger decreases in operating performance, greater reduction in loans from state‐owned banks, and higher departure of political directors.

ABSTRACT This paper investigates whether foreign institutional investors affect the global convergence of financial reporting practices. Using several measures of reporting convergence, we show that U.S. institutional ownership is positively associated with subsequent changes in emerging market firms’ accounting comparability to their U.S. industry peers. We identify this association using an instrumental variable approach that exploits exogenous variation in U.S. institutional investment generated by the JGTRRA Act of 2003. Further, we provide evidence of a specific mechanism—the switch to a Big Four audit firm—through which U.S. institutional investors affect reporting convergence. Finally, we show that, for emerging market firms, an increase in comparability to U.S. firms is associated with an improvement in the properties of foreign analysts’ forecasts.

We report results from a large, randomized field to study how access to formal microinsurance affects production and economic development. We induce exogenous variation in insurance coverage at the village level by randomly assigning performance incentives to the village animal husbandry worker who is responsible for signing farmers up for the insurance. We find that promoting greater adoption of insurance significantly increases farmers' sow production, and this effect seems to persist in the longer run; moreover, the increase in sow production in response to the sow insurance does not seem to be the result of the substitution of other livestock.