We investigate whether suppliers value their clients’ ESG profiles in China, the largest emerging market featured with low ESG awareness and severe agency problems. We find a robust and negative impact of Chinese firms’ ESG scores on their access to trade credit. The 2SLS regression results based on the instrumental variable indicate that the impact is casual. Additionally, the impact is more pronounced for firms with higher agency costs, greater information asymmetry, and worse financial performance. These results suggest that suppliers in China view clients’ ESG engagement as costly investments caused by agency problems. Finally, we highlight the economic importance of the impact by showing that trade credit access helps Chinese firms decrease debt costs, increase trade credit supply to downstream firms, and promote R&D inputs.

In this paper, we use a distinct quasi-natural experiments to examine the effect of liberalization of the stock market on corporate environmental, social, and governance(ESG) disclosure quality. We find that the liberation of the opening of Shanghai(Shenzhen)-Hong Kong Stock Connect (SHSC) significantly and consistently improves ESG disclosure quality of listed companies, and this effect is most evident in environmental information disclosure. We then find that the SHSC can improve the quality of ESG disclosure of listed companies through “voting with feet” and “external supervision” effect. Furthermore, the effect is stronger in firms that are Non-SOEs and with low equity concentrations. Overall, our results suggest that the liberalization of stock market can improve the quality of companies’ ESG disclosure quality.

This study examines the effect of mandatory corporate social responsibility (CSR) on firm excess perks by exploiting China’s 2008 mandate requiring firms to disclose CSR activities with a difference-in-differences design. We find that firms mandated to report CSR experience a decrease in excess perks subsequent to the mandate. Our empirical results also reveal that the decrease in abnormal perks is more pronounced for firms with worse information environments and lower CSR disclosure quality, suggesting that mandatory CSR disclosure significantly reduces executive abnormal perks and restricts managers’ unethical behavior by improving the quality of the information environment for investors. Our main finding does not change using the subsample before 2012, indicating that the reduction of abnormal perks is driven by the enaction of mandatory CSR rather than the anti-corruption campaign started in 2012. The last but not the least, the reductions of excess perk consumption are primarily driven by non-SOE firms and competitive industries, and mandatory CSR firms are subject to a significant and stronger pay-to-performance, which again confirm the well-governed view of corporate social responsibility.

This paper finds that Chinese stocks rise in February instead of January. Further analysis shows that the February premium is attributed to the Chinese New Year. We propose an alternative explanation for this premium based on liquidity preference, i.e., investors prefer holding liquid assets before the holiday and illiquid assets after the holiday. We find a substantial decrease in monetary base and increase in market activity after the Chinese New Year. The empirical fact that the Chinese New Year effect is particularly strong for stocks with low institutional holdings also supports this hypothesis.

Using daily news tone data between 2017 and 2020, we examine whether news tones can predict stock returns in Chinese A-share market. We first document that the news tones significantly and positively predict the cross-sectional stock returns over next day and over the next 12-weeks. When we separate the news into online news and paper news, the online news exhibit strong predictive power for future returns, while the printed news only displays marginal predictive power. We hypothesize that the online news is more related to firm fundamentals, while the paper news is more linked to political aspects of firm information. Our results using earnings surprises and SOE subsamples provide supportive evidence for the hypothesis.

This study documents a pervasive inverse relationship between asset growth rates and bond performance among non-investment and low-investment grade bonds. We argue such inverse relation holds ex ante considering a high growth rate in firm total assets results in growth in tangible assets and lowers bond default probabilities. Our empirical finding supports this hypothesis. Tangible asset growth of poorly rated bonds is negatively associated with contemporaneous bond performance and expected default probability. The finding is robust to different economic conditions and investment sentiments.

Using political turnovers in mayoral appointments at the prefecture-city level in China, we show that investors in the municipal corporate bond market price their concerns for rising local political uncertainty into bonds and relocate capital toward other corporate bonds issued by local firms. Municipal/non-municipal corporate bond issue spreads increase (decrease) by 8.9 (14) basis points before the expected political turnover of mayors and reverse afterwards. The effect is more prominent for bonds issued in cities with investors who have a strong local preference, suggesting investors switch from MCBs to local non-MCBs in their bond holdings. The pricing effect is also stronger for bonds issued in regions with more developed financial markets and bonds with lower credit ratings. Lastly, bond market participants only price in the political risk induced by the turnovers of politician with direct involvement in local economic activities.

This study investigates the impact of independent directors' participation in the shareholders meeting on corporate governance, and finds that the more frequently the independent directors attend shareholder meetings, the lower the degree of earnings management by the enterprise; the mechanism test shows that more information increases the probability, frequency, and severity of independent directors’ subsequent dissenting opinions; This study identified a new channel for independent directors to independently obtain true information and this is of great significance for regulators, shareholders, company board, and other stakeholders with an interest in how the information influence independent directors governance effects.

The advantages and disadvantages of universal banking have long been debated. Using the successive granting of lead underwriter qualifications to commercial banks in China as a quasi-natural experiment, we study the impact of universal banking on non-financial firms’ investment decisions. We find that after a firm’s main lending banks qualify as lead underwriters, the firm’s investment increases by 7.7 to 8.3 percent on a gross or net basis. The underlying mechanism is that universal banking can generate informational economies of scope and relax constraints on the provision of external finance. In contrast, we find no evidence on the conflict of interest between universal banks and their customers. Our study, therefore, sheds light on the potential gains from universal banking.

We investigate the impact of the geographic proximity of underwriters on bond characteristics by using corporate and enterprise bonds issued in China from 2009 to 2019. We find bonds underwritten by underwriters in close geographic proximity are associated with lower financing costs, longer maturity in high and medium credit rating firms, shorter maturity in low credit rating firms, and lower default risk. Further, we find substitution effects between the geographic proximity of underwriter and underwriter reputation, and also between the geographic proximity of underwriter and firm transparency on reducing the costs of bond financing; i.e., a better reputation of the underwriter or higher transparency of the firm will weaken geographical proximate underwriters’ effects. Our results are robust in subsamples when firms have different degrees of local government connections.