We revisit and extend the topic of secondary share sales and revisions in IPOs. First we test to determine if secondary share sales constitute a negative signal that is captured in aftermarket performance. We find secondary share sales in general are not correlated with poorer initial or long-run performance, but selling by officers and directors is associated with poorer long-run returns. Second, we examine if secondary share revisions (1) reflect selling shareholders’ attempts to conceal private information or (2) are contingent upon whether a firm can reach its goal of raising sufficient capital. We find empirical support for a capital goal, but not for concealment.

This article proposes an innovative method to assess borrowers’ creditworthiness in consumer credit markets by conducting machine-learning-based analyses on real-time video information that records borrowers’ behavior during the loan application process. We find that the extent of borrowers’ micro-facial expressions of happiness is negatively associated with loan delinquency likelihood, while the degree of fear expressions is positively associated with delinquency risk. These results are consistent with two economic channels relating to the adequacy and uncertainty of borrowers’ future income, drawn from the extant psychology and economics literature. Our study provides important practical implications for fintech lenders and policymakers.

We investigate the informational roles of foreign ownership in local credit rating agencies (CRAs) in the Chinese onshore debt market, which was the world's largest emerging debt market from 2008 to 2017. We find a robust negative relationship between the bond offering yield and foreign ownership in local CRAs, which suggests that these ratings certify the credit quality of debt issuers and thus enhance the market values of new debt issues. The information content of these ratings, however, is in contrast with the information provision role of foreign-owned CRAs (global CRAs). We find that these ratings provide no or weak better predictive power of issuers’ future credit performances than domestic CRAs. In addition, we find that stock and bond market reactions at the announcements of rating revisions made by global CRAs are not significantly different from those made by their domestic counterparts. We attribute the seemingly contradictory results to the preference for foreign brands in emerging markets and/or the improved bond liquidity associated with global CRA ratings.

We examine how the issuer-paid incumbent credit rating agencies (CRAs) in China adjust their rating strategies in response to the 2010 entry of an independent credit rating agency, China Bond Rating (CBR) between 2006 and 2015. The business model that CBR employs is a combination of the public utility model and the investor-paid model. We find that the CBR's ratings coverage effectively reduced the information asymmetry in the Chinese corporate bond market. The evidence shows decreased ratings inflation and increased informativeness of rating change announcements by incumbent issuer-paid CRAs after CBR entered the market. The findings suggest that a firm's credibility is an important channel driving issuer-paid incumbent CRAs’ strategic ratings. Our paper provides new information and insight into the debate of whether CRAs with alternative business models can alleviate the information asymmetry problem.

This paper provides a method for testing for regime differences when regimes are long-lasting. Standard testing procedures are generally inappropriate because regime persistence causes a spurious regression problem – a problem that has led to incorrect inference in a broad range of studies involving regimes representing political, business, and seasonal cycles. The paper outlines analytically how standard estimators can be adjusted for regime dummy variable persistence. While the adjustments are helpful asymptotically, spurious regression remains a problem in small samples and must be addressed using simulation or bootstrap procedures. We provide a simulation procedure for testing hypotheses in situations where an independent variable in a time-series regression is a persistent regime dummy variable. We also develop a procedure for testing hypotheses in situations where the dependent variable has similar properties.

Regulatory punishment in an oligopolistic credit rating market can be costly. Utilizing the Chinese bond market’s unique features, particularly a third-party rating agency, we investigate the regulatory suspension of Dagong Rating by Chinese regulators and its market impact. The punishment initially deters Dagong but diminishes the quality of its ratings post-punishment, altering market competition. Upon returning, Dagong inflates ratings to regain market share, reflecting a “temporary suppression” strategy. Non-Dagong agencies respond by adjusting their ratings; higher power agencies lower ratings, while lower power agencies raise them to stay competitive. Investors remain skeptical of these inflated ratings. Despite Dagong’s suspension, we find no significant differences in bond or stock price reactions between Dagong-rated and non-Dagong-rated firms, suggesting investors did not penalize Dagong-rated entities. This study highlights the complex dynamics and unintended consequences of regulatory interventions in the credit rating market.

We study how sharing a hometown or college connection with an incumbent member of China’s Politburo affects a candidate’s likelihood of selection as a new member. In specifications that include fixed effects to absorb quality differences across cities and colleges, we find that hometown and college connections are each associated with 5–9 percentage point reductions in selection probability. This “connections penalty” is equally strong for retiring Politburo members, arguing against quota-based explanations, and it is much stronger for junior Politburo members, consistent with a role for intra-factional competition. Our findings differ from earlier work because of our emphasis on within-group variation, and our focus on shared hometown and college, rather than shared workplace, connections.

We study favoritism via hometown ties, a common source of favor exchange in China, in fellow selection of the Chinese Academies of Sciences and Engineering. Hometown ties to fellow selection committee members increase candidates’ election probability by 39 percent, coming entirely from the selection stage involving an in-person meeting. Elected hometown-connected candidates are half as likely to have a high-impact publication as elected fellows without connections. CAS/CAE membership increases the probability of university leadership appointments and is associated with a US$9.5 million increase in annual funding for fellows’ institutions, indicating that hometown favoritism has potentially large effects on resource allocation.