We study the effects of a direct high-speed rail (HSR) service between two cities on investors and firms in China’s A-share markets. After an HSR introduction, retail investors make more cross-city web searches and block stock purchases of firms in connected cities. An HSR introduction also leads to less comovement among local stocks and more comovement between stocks in connected cities. Firms located in more central cities in the HSR network enjoy higher firm valuation, lower cost of equity, higher turnover, and better liquidity, in part through the channel of increased investor recognition. The HSR effects on capital market outcomes are more pronounced among small firms and when the connected city-pair distance is below 1,500 km, for which HSR is faster than flying. The findings highlight the importance of in-person interactions in financial markets.

We find that institutional investors' local culture of religiosity influences their stock lending decisions and induces short-sale constraints on the underlying stocks. Firms with higher ownerships by blockholders located in more religious counties are associated with higher utilization of lendable shares. This effect is driven by a lower supply of, rather than a higher demand for, lendable shares. Stock lending fees of such firms are higher, and higher short interests of such firms more strongly predict lower future stock returns. Our findings suggest that the cultural norms of institutional investors can create market friction through the stock lending channel.

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.

Analyzing data from 3,616 Chinese listed firms, we find a strong positive relationship between policy uncertainty and firms’ exchange rate exposure. This result remains robust after controlling for macroeconomic conditions and addressing endogeneity issues. Notably, policy uncertainty’s impact is significantly stronger for firms with a higher degree of international involvement and for poorly-governed firms. Interestingly, firms use financial hedging more intensively and reduce their operational hedging in high-uncertainty periods. Our results suggest that policy uncertainty exacerbates the impact of currency movements on firms’ financial performance, as firms become increasingly involved in international operations. Consequently, firms should strengthen their corporate governance and make effective use of hedging tools.

Investors' previous experiences with a stock affect their willingness to repurchase it. Using Chinese investor-level brokerage data, we find that investors are less likely to repurchase stocks that have increased in value since they were sold. We then construct a novel measure of Regret to capture investors' repurchase regret and investigate its asset pricing implications. Stocks with higher Regret experience lower buying pressure from retail investors in the future, leading to lower future returns. In terms of economic magnitude, portfolios with low Regret generate 12% more annualized abnormal returns. Further analyses show that the pricing effect of Regret is more pronounced among lottery-like stocks and those in which investors have previously gained profit. The results are robust to alternative estimations.

Using China's Strategic Emerging Industries Classification (CSEIC), which is enacted in 2018, as a quasi-natural experiment, this study investigates its impact on corporate innovation behaviors. In basic research, we find that: (1) The CSEIC significantly enhances both substantive and strategic innovation; (2) The effect of CSEIC is influenced by the characteristics of the enterprise. Specifically, in state-owned enterprises (SOEs), the CSEIC significantly enhances substantive innovation and strategic innovation, while in non-SOEs, the CSEIC only significantly enhances substantive innovation. In further research based on entrepreneurial spirit, we find that: (1) The effect of CSEIC on strategic innovation is suppressed if entrepreneurial patriotism is higher, no matter whether the enterprise is SOEs or non-SOEs; (2) The effect of CSEIC on substantive innovation is enhanced, if and only if entrepreneurial integrity is higher in SOEs or International Vision is higher in non-SOEs. These findings offer valuable insights for policymakers aiming to foster innovation through targeted support for enterprise leaders, highlighting the need for tailored approaches considering the distinct characteristics of SOEs and non-SOEs.

This paper proposes a conditional factor model embedded with heterogeneous group structure, called grouped Instrumented Principal Component Analysis (Grouped IPCA) model, to study the enhancement of industry classifcations on the pricing power of frm characteristics. We derive an inferential theory on the alternating least square (ALS) estimators of the grouped IPCA model under an unbalanced panel data. Based on this, we use two BIC-type information criteria to determine the number of latent factors. We further examine the group heterogeneity with a bootstrap test statistics. Simulations are conducted to evaluate both our asymptotic theory and test statistics. In the empirical study, we show that the in-sample performance of Grouped IPCA model excels the IPCA model, and fnd a strong evidence on the incremental pricing power of industries.

This paper explores the widespread perception of insurers as bad payers, often accused of unjustly rejecting legitimate claims. We explore the mechanisms leading to this negative image by examining the strategic “nitpicking” behaviour of insurers. Such behaviour involves an insurer’s effort to find evidence that can help it cut the indemnities of honest claims. Our findings reveal that this nitpicking behaviour only arises in markets with asymmetric information, where policyholders are unable to observe insurers’ nitpicking strategies. Conversely, in markets with symmetric information, insurers lose the incentive to engage in nitpicking. Moreover, our study highlights that nitpicky behaviour leads to a reduction in welfare and Pareto-inefficiency. This is because nitpicking is essentially an overpriced gam- ble that charges lower premiums from policyholders at a no-loss state, but cuts actual indemnities received by policyholders at a loss state.

Using text data from Reddit, we construct inter-firm linkages based on shared discussions and common authors on social media. We find that firms linked on social media have similar fundamentals characteristics. The positive predictability of the returns of their Reddit peer stocks on focal stocks’ future returns suggests a sluggish dissemination of information. Our findings show that social media activities capture the collective cognition of the public, effectively reflecting the financial network in an implicit way.

Corporate site visits provide investors with opportunities to obtain non-standard, tailored "soft" information about the firm. In this study, we investigate the impact of information disclosed from corporate site visits on stock market stability from the perspective of stock return volatility. Our findings suggest that it is the information disclosed rather than the visits themselves that significantly reduce stock return volatility, primarily by mitigating information asymmetry. Moreover, we observe that the volatility-mitigating effect of site visits is more pronounced when the visit information better aligns with investors' concerns and when it is more effectively disseminated. Our study contributes to the literature by demonstrating that the timely disclosure of site visit details serves as a stabilizing mechanism for stock prices through effective information mining and dissemination.