This paper examines the consequences of Chinese regulators deviating from a long-standing full bailout policy in addressing the distress of a city-level commercial bank. This policy shift led to a persistent widening of credit spreads and a significant decline in funding ratios for negotiable certificates of deposit issued by small banks relative to large ones. Our empirical analysis reveals a novel contagion mechanism driven by reduced confidence in future bailouts (implicit non-guarantee), contributing to the subsequent collapse of other small banks. However, in the longer term, this policy shift improved price efficiency, credit allocation, and discouraged risk-taking among small banks.

Corporate misconduct poses significant risks to financial markets, undermining investor confidence and economic stability. This study investigates the influence of World Heritage culture, with its social, historical, and symbolic values, on reducing corporate misconduct. Using firm-level data from China, with its rich cultural heritage and ancient civilization, we find a significant negative association between the number of World Heritage sites near a company and corporate misconduct. This suggests that a richer World Heritage culture fosters an informal institutional environment that mitigates corporate misconduct. This effect is robust across 100 km, 200 km, and 300 km thresholds and remains significant when using a binary misconduct indicator. The results also show that World Heritage culture enhances corporate social responsibility (CSR) and social capital, which in turn reduces corporate misconduct. Additionally, the impact of World Heritage culture is more pronounced in firms located in high social trust areas, those with high institutional investor supervision, and those farther from regulatory authorities. These findings advance academic knowledge and offer practical implications for policymakers and investors.

The level of corporate risk-taking impacts debt default as a crucial investment decision. Hence, this must be examined considering resource allocation. This study uses A-share listed companies from 2007 to 2021 as samples to empirically explore the impact and mechanism of corporate risk-taking level on debt default risk. The results show that corporate risk-taking can significantly inhibit debt default and the risk of debt default by promoting total factor productivity. Further, the higher the level of enterprise financialization of the firm, the higher the stock liquidity, and the higher the level of managerial confidence, the stronger the inhibitory effect of corporate risktaking on debt default. The heterogeneity analysis reveals that the inhibitory effect of corporate risk-taking on debt default is more significant in large-scale enterprises, enterprises with lower regulatory shareholdings, and enterprises with standard unqualified audit opinions. The study provides guidance for enterprises to improve the level of risk-taking and resource allocation efficiency effectively. Moreover, it provides empirical support for regulators to effectively prevent "waves of defaults" and even "waves of bankruptcies" in the real economy.

Utilizing a unique P2P dataset, this study employs the PSM-DID method to explore the learning effect brought about by default events on investors. The findings reveal that investors who experience their first default event demonstrate an improved ability to select a higher-quality project the next time. Notably, this positive effect is more pronounced when facing substantial defaults, as opposed to cases where overdue principal and interest are eventually settled. Investors' initial confidence in defaulted projects contributes to a greater enhancement of their investment skills. Furthermore, the beneficial impacts of defaulted events diminish as investors’ investment experience accumulates.

This study investigates the effectiveness of the volatility-timing strategy in the Chinese equity market. We find that the volatility-managed portfolio (VMP) consistently outperforms its original counterpart, both in individual factor analysis and mean-variance efficient multifactor assessment, and the results are robust in outof-sample setup. Notably, the outperformance is mostly driven by stocks with high arbitrage risk, short-selling constraints, relatively smaller size, and lottery preferences. Further, the multifactor portfolio constructed from the volatility-managed strategy outperforms other portfolios especially in turmoil periods such as high sentiment and low macroeconomic confidence periods. Our findings suggest that in the Chinese equity market with typical trading frictions, volatility timing strategies consistently gain profitable performance.

Using sample of Chinese listed firms from Q1 2017 to Q4 2022, this article examines the impact of economic policy uncertainty on share repurchases. We find that economic policy uncertainty significantly increases the probability and scale of open market share repurchases. Private enterprises, government-supported enterprises, innovative enterprises, and investment hotspot enterprises repurchased more shares during periods of high economic policy uncertainty. Additionally, the market value of repurchase programs issued during periods of high economic policy uncertainty is larger. We also discover that economic policy uncertainty substantially influences the characteristics, timing, and outcomes of the repurchase programs. Lastly, this article confirms that share repurchase behavior has a similar effect to voluntary disclosures and can alleviate the information asymmetry triggered by economic policy uncertainty. In summary, Chinese listed firms have resorted to more share repurchases during periods of high economic policy uncertainty to convey their actual value and boost investor confidence, aligning with the signaling motive. Open market share repurchases surface as an efficacious instrument to cope with the risk from economic policy uncertainty.

This study examines the effect of retail investor-firm communications (RIFC) on corporate ESG performance. Exploiting the unique setting of Chinese investor interactive platforms which enable retail investors to pose questions and require firm answers, we show that RIFC significantly improves corporate ESG performance. The consistent evidence is obtained by employing the difference-indifference estimation, Oster’s test and alternative indictors, strengthening our confidence in the causal link between RIFC and corporate ESG performance. Furthermore, we identify two potential economic channels underlying our results: strengthening monitoring pressure and alleviating financial constraints. Our finding further reveals that RIFC drives genuine improvements in ESG performance rather than greenwashing practices. Collectively, this study advances our understanding of the interplay between retail investors and corporate ESG performance, providing a stepping stone toward effective solutions to corporate sustainable development.

This paper investigates the consequences of Chinese regulators deviating from a long-standing full bailout policy in addressing a city-level commercial bank’s distress. This event led to a persistent widening of credit spreads and a significant decline in funding ratios for negotiable certificates of deposit issued by small banks relative to large ones. Our empirical analysis pinpoints a novel contagion mechanism marked by diminished confidence in bank bailouts, which accounts for the subsequent collapse of several other small banks. However, the erosion of confidence in government guarantees enhances price efficiency and credit allocation while discouraging risk taking among small banks.

Bank bailouts are systemic in China, having been extended to nearly all distressed banks, including those with no systemic importance. This paper investigates the consequences of regulators seizing control of Baoshang Bank, the country’s first bank failure in two decades. Despite the numerous liquidity and credit provision measures immediately implemented by bank regulators, we find that the collapse of this city-level commercial bank significantly exacerbated funding conditions in the market for negotiable certificates of deposit (NCD), resulting in liquidity distress for other banks. Our empirical analysis demonstrates that the spillover of Baoshang’s collapse is disproportionately concentrated in systemically unimportant (SU) banks, owing to diminished market confidence in government bailouts of SU banks, or implicit nonguarantee. We employ a difference-in-differences approach to show that the Baoshang event had a persistent and significant effect on SU banks’ NCD issuance, increasing credit spreads by 21.9 bps and the likelihood of issuance failure by 6.3%. Our empirical framework further enables us to examine the impact of China’s long-standing guarantee of SU banks, which we find impairs price efficiency, undermines market discipline, encourages excessive risk taking, and raises equity prices.

Based on a DSGE model embedded with a stock market, we inspect interconnection between China's financial markets and macroeconomic cycles. We find consumption, investment and capacity utilization display significant and positive responses to stock market booms triggered by financial and confidence shocks, however, inflation responds insignificantly. We perceive a counteractive and significant reaction of China's monetary policy rule to credit-to-GDP gap at business cycle frequency. We decompose stock price into fundamental value influenced by the financial shock and speculative bubble driven by the confidence shock, and the confidence shock's contribution to stock price fluctuations is estimated to be about 14.8%. Model validation based on the DSGE-VAR framework indicates no serious structural model misspecification.