I study how the density of executive labor markets affects managerial incentives and thereby firm performance. I find that U.S. executive markets are locally segmented rather than nationally integrated, and that the density of a local market provides executives with non-compensation incentives. Empirical results show that in denser labor markets, executives face stronger performance-based dismissal threats as well as better outside opportunities. These incentives result in higher firm performance in denser markets, especially when executives have longer career horizons. Using state-level variation in the enforceability of covenants not to compete, I find that the positive effects of market density on incentive alignment and firm performance are stronger in markets where executives are freer to move. This evidence further supports the argument that local labor market density works as an external incentive alignment mechanism.

Using hedge funds’ holdings of IPO stocks, we find that stocks with abnormally high hedge fund holdings, based on stock and deal characteristics, yield abnormal returns. Moreover, hedge funds are able to sell IPO stocks in a timely fashion before long-run underperforming periods start, suggesting that hedge funds possess information advantages in IPO stocks. Finally, we address the question of where hedge funds may have obtained their information advantages. Hedge funds earn higher abnormal returns in “connected” stocks when their prime brokers also serve as IPO underwriters, indicating that such connections enable hedge funds to make more informed investment decisions in IPO stocks. Received December 31, 2014; editorial decision May 27, 2017 by Editor Wayne Ferson.

I describe a brief summary of the development of databases used in accounting research and discuss the research questions addressed in traditional databases and ‘new’ databases. The new data include online searches such as Google Trends data; textual data from corporate disclosures, analyst reports, conference call transcripts, earnings press releases, and news media articles; social network and social media data from Twitter, LinkedIn, Glassdoor, and other data. New data holds promise for research on attention or cognitive processing constraints; on tone/valence, affect, deceptiveness and credibility for capital market and financial reporting outcomes. I examine the econometric challenges of new data and suggest the potential for new data to offer new auditing tools to detect poor financial reporting, which will help to discourage earnings management.

ABSTRACT Using proprietary data from the China Development Bank (CDB), this paper examines the effects of government credit on firm activities. Tracing the effects of government credit across different levels of the supply chain, I find that CDB industrial loans to state‐owned enterprises (SOEs) crowd out private firms in the same industry but crowd in private firms in downstream industries. On average, a $1 increase in CDB SOE loans leads to a $0.20 decrease in private firms' assets. Moreover, CDB infrastructure loans crowd in private firms. I use exogenous timing of municipal politicians' turnover as an instrument for CDB credit flows.

We examine the impact of competition on bank earnings persistence by exploiting a natural experiment following interstate banking deregulation that increased bank competition. We find that bank earnings adjustment speed increases after their states implement the deregulation. This relationship is weakened, however, with the increase of bank's abilities to sustain earnings, as reflected in size, diversification, managerial efficiency and safety. We further find that the impact of compeititon on bank earnings adjustment speed is direct but not indirectly through the channel of earnings management.

This paper examines the role of teacher gender in education production. We extend student outcomes from traditionally focused academic achievement to noncognitive outcomes. Using a representative survey of middle school students in China, we focus on schools where student-teacher assignments are random. Our results show that having a female teacher raises girls’ test scores and improves their mental status and social acclimation relative to those of boys. There is evidence that female teachers provide feedback differently to girls and boys and that having a female teacher alters girls’ beliefs about commonly held gender stereotypes and increases their motivation to learn.

This study shows that corporate innovation efficiency (IE) as measured by patents filed or cited divided by R&D expenditures improves credit ratings, but this occurs gradually. This gradual response implies that credit rating agencies (CRAs) impose in the near term a higher borrowing cost on innovative firms than their performance and risk characteristics would justify. We predict and confirm that the gradual improvement of credit ratings in response to IE is amplified for firms with more downside risk, with more financial constraints, and with increased sales or cash flows in the years following the IE. These results suggest a predictable response of CRAs to contemporaneous IE information based on economic factors relevant to credit analysis rather than a response based on CRAs' inefficient or biased use of innovation information.

We find that multi-bank holding companies (MBHCs) in the U.S. have lower insolvency risk than single-bank holding companies (SBHCs) at the parent level, but have significantly higher insolvency risk than the latter at the subsidiary level. Our results suggest that MBHC parents tend to benefit from the internal capital market while allowing for more risk-taking at the individual levels. We further find that the higher risk for MBHC affiliates is because of the organizational and geographic complexity at the MBHC parent level. Our results highlight the importance of government regulation on banks at both parent and subsidiary levels.

This study identifies a J-shaped relation between dividends and firm value. On average, top-dividend-payers are valued higher than all other firms, while non-dividend-payers are valued higher than low-dividend-payers. This J-shaped relation is highly stable over time as it is observed in nearly every year over the period 1962–2010, and it remains significant after controlling for firm characteristics such as profitability, growth and firm size. We also find similar J-shaped relations in stock markets outside the U.S. Our evidence suggests that dividend theories, such as the dividend catering, free-cash-flow and dividend clientele hypotheses, are inadequate to explain the J-shaped relation. It does not appear that the J-shaped pattern reflects mispricing. There is mixed evidence as to whether the J-shaped relation is driven by dividends or unobservable firm characteristics.

This study examines whether crackdown on political corruption in China affects future stock price crashes. Using data from corruption-related prosecutions, we find that firms under prosecuted official jurisdictions experience a significant decrease in crash risk after the crackdown. Cross-sectional tests show that results are more pronounced for firms with higher political dependence on governments and for firms with worse information environment. Moreover, channel tests provide direct evidence that crackdown decreases crash risk by reducing political risk and bad news hoarding. Overall, our study offers novel evidence on how crackdown on corruption benefits firms.