The endurance of empire in China over much of the past two millennia contrasts starkly with the political fragmentation in Europe since the fall of Rome. To explain the persistence of China’s empire, we analyze the role of keju, the imperial civil service examination system. We argue that the systematic implementation of keju from the Song dynasty onward tied local elites to the imperial state, sustaining political integration and reducing secessionist conflicts. Exploiting panel data covering 4,243 grid cells and 22 centuries, we find robust evidence that areas producing more jinshi – the top exam passers – experienced significantly fewer secessionist wars. Our study shows how the examination system created the political incentives for imperial durability.

This paper examines the relationship between award-winning CEOs and the levels of innovation investment in Chinese-listed companies. The findings indicate that CEOs who have received awards are more likely to foster increased corporate innovation. Additionally, these award-winning CEOs are associated with enhanced long-term operating performance for their firms and reinforce the link between current R&D investments and future operational success. Ultimately, our results suggest that CEO awards can enhance corporate innovation through two primary channels: first, by attracting investors, thereby alleviating financing constraints, and second, by promoting greater engagement from academics and overseas talent in innovation initiatives.

We examine whether firms with high organization capital (OC) are more likely to purchase Directors’ and Officers’ (D&O) liability insurance, using a panel of Chinese A-share listed companies from 2009 to 2021. We document a robust positive association between OC and the propensity to carry D&O insurance. The effect remains statistically and economically significant after controlling for firm characteristics and employing multiple identification strategies to address endogeneity. We propose two economic channels through which OC affects D&O insurance demand, namely, agency and information asymmetry. Consistent with these mechanisms, we find that the positive OC–D&O relationship is significantly stronger in firms with weaker internal governance and those facing opaquer information environments. Additional cross-sectional analyses show that this effect is concentrated in privately-owned firms and in regions with more developed market institutions, suggesting that external pressures accentuate the value of insuring key decision-makers. Our results are robust to alternative model specifications and remain stable after using propensity score matching, instrumental variable approaches, and the Heckman two-stage model. Overall, the findings highlight OC as a critical internal driver of corporate insurance decisions. Firms with substantial intangible assets strategically obtain D&O coverage to strengthen governance and reduce information frictions, especially in emerging markets like China where formal investor protections are still evolving.

As companies and investors globalize, we are increasingly faced with estimation questions about the risk associated with this globalization. When investors invest in China Mobile, Infosys or Vale, they may be rewarded with higher returns, but they are also exposed to additional risk. When Siemens and Apple push for growth in Asia and Latin America, they clearly are exposed to the political and economic turmoil that often characterize these markets. In practical terms, how, if at all, should we adjust for this additional risk? We will begin the paper with an overview of overall country risk, its sources and measures. We will continue with a discussion of sovereign default risk and examine sovereign ratings and credit default swaps (CDS) as measures of that risk. We will extend that discussion to look at country risk from the perspective of equity investors, by looking at equity risk premiums for different countries and consequences for valuation. In the fourth section, we argue that a company’s exposure to country risk should not be determined by where it is incorporated and traded. By that measure, neither Coca Cola nor Nestle are exposed to country risk. Exposure to country risk should come from a company’s operations, making country risk a critical component of the valuation of almost every large multinational corporation. In the final section, we will also look at how to move across currencies in valuation and capital budgeting, and how to avoid mismatching errors.

Prevailing research, assuming developed financial markets, concludes that Chinese firms heavily rely on “short-term credit for long-term investment.”We challenge this view, arguing that China's vibrant informal financial system provides crucial alternative funding. Consequently, the severity of this maturity mismatch is likely overestimated. To investigate this, we examine strategic alliances as a representative informal institution. Our analysis confirms that such alliances significantly mitigate maturity mismatch, revealing that they enhance information sharing and reduce transaction costs. This provides initial evidence of informal institutions' critical role in addressing this issue. Given the prevalence of similar arrangements in China—like private lending and inter-corporate financing—our findings highlight the need to look beyond formal systems. This perspective not only recalibrates the understanding of corporate financing in China but also opens ample avenues for future research on informal finance's role in emerging economies.

We examine how investors who experienced paper gains during a bubble-crash episode, deemed as investors “escaping from death”, adjusted their future risk-taking. Using detailed transaction-level data and a quasi-experiment based on an unanticipated government intervention in the 2007–08 Chinese stock market, we find that investors who “escaped from death” reduce risk-taking behaviors over the next five years. The evidence shows that the change in risk taking is likely at-tributable to reference-dependent preferences. However, the effect diminishes over time and investors “escaping from death” do not exhibit a diminished tendency toward risk-taking when confronted with a stock market bubble crash again.

This paper provides a comprehensive analysis of excess returns specific to corporate bonds. We construct a measure of excess returns that uses synthetic Treasury securities with identical cash flows as benchmarks, thereby fully removing interest rate effects and isolating the component of returns specific to corporate bonds. Using a monthly sample from 2002 to 2024, we find that, in addition to being lower on average, the corporate-bond-specific excess return differs significantly in the cross section from both the standard excess return based on T-bills and the duration-adjusted return. We further examine the effects of a broad set of bond-level characteristics and systematic risk factors on bond excess returns. Together, these findings provide a foundational benchmark for future research on corporate bond returns.

This study investigates the role of contextual cues in memory-based decision-making within high-stakestrading environments. Using trade records from a large Chinese brokerage firm and a novel dataset on COVID-19 quarantines, we find that quarantine periods trigger the recall of previously traded stocks, increasing the likelihood of subsequent orders for those stocks. The observed patterns align more closely with similarity-based recall than with alternative channels. Welfare analysis reveals that these memory-induced trades lead to an annualized loss of approximately 70 percentage points for the representative investor’s portfolio. We also find evidence at the market level: when the geographical distribution of quarantine risks is recalled, the probability of recalling the cross-sectional stock return-volume distribution from the same day increases by 1.6 percentage points. This study provides causal evidence from a real-world setting for memory-based theories, particularly similarity-based recall, and highlights a novel channel through which COVID-19 policies affect financial markets.

This paper investigates how foreign institutional investors, specifically Qualified Foreign Institutional Investors (QFIIs), influence the investment strategies of Chinese mutual fund management companies (FMCs) in which they hold shares. By analysing panel data from 1,766 mutual funds managed by 44 foreign-invested FMCs in China between 2005 and 2021, we explore whether QFII-invested FMCs (Q-FMCs) learn more from their domestic counterparts (D-FMCs) than other foreign-invested FMCs (NQ-FMCs). Our findings show that Q-FMC-managed mutual funds exhibit portfolio allocations more closely aligned with local DFMCs than those managed by NQ-FMCs. This imitation is particularly pronounced when selecting new stocks, enhancing portfolio performance, but not when rebalancing existing positions. Additionally, Q-FMCs trade more actively than NQ-FMCs. Robustness checks confirm these results across various ownership structures, fund characteristics, market conditions, and regulatory changes. These findings highlight the dual role of QFIIs as both investors and learners in China’s evolving financial landscape, offering insights into how foreign capital integrates into emerging mutual fund markets, informing regulatory policy aimed at fostering cross-border financial development.

The flow-performance relation in China’s mutual fund market differs from that in developed markets (e.g., the U.S.). We find that investors actively allocate capital to poorly performing funds, generating a negative relation at the bottom of return distribution. These flows are driven mainly by increased purchases rather than reduced redemptions. We then examine the mechanisms behind this anomaly. First, investors act on rational expectations of performance reversals, with this pattern being more pronounced among funds with higher activeness. Second, product differentiation attracts heterogeneous investors when performance is weak. Third, marketing and fund family effects serve as simple signals that amplify inflows. Overall, our study provides new empirical evidence on fund investor behavior and its economic consequences in an emerging market context.