This paper investigates how government fiscal constraints transmit to the private sector through procurement. We exploit three rounds of VAT rate cuts in China (2017–2019) as exogenous shocks to local government revenues. Combining city-level fiscal pressure measures with 9,189 procurement contracts from A-share listed firms, we construct a firm-year exposure index weighted by procurement volumes across cities. We find that exposure to fiscally stressed government buyers significantly depresses firm valuation: a one-standard-deviation increase reduces Tobin's Q and price-to-sales ratios by 5.3% and 4.3%, respectively. This effect concentrates among private firms, those lacking industrial policy support, and firms with lower rent-seeking expenditures—precisely those with weaker bargaining power against government counterparties. Beyond valuation, such exposure leads to a subsequent deterioration in firm fundamentals, characterized by tightened liquidity constraints, reduced investment and financing, and worse information disclosure over a three-year horizon. Land finance partially buffers these effects. Our findings highlight an unintended micro-level consequence of macro fiscal policy: expansionary tax cuts designed to stimulate the private sector may inadvertently harm firms by weakening the government's capacity to fulfill procurement payments.

Beyond a bias toward local stocks, investors prefer companies in certain cities over others. This study uses the geographic network of investor-followed stocks from stock watchlists to identify intercity investment preferences in China. We measure the city-pair connectivity by its likelihood of sharing an investor in common whose stock watchlist is highly concentrated in the firms of that city pair. We find that a higher connectivity-weighted aggregate stock demand-to-supply ratio across connected cities is associated with higher stock valuations, higher turnover, better liquidity, and lower cost of equity for firms in the focal city. The effects are robust to controls for geographic proximity and the broad investor base, are stronger among small firms, extend to stock return predictability, and imply excess intercity return comovement. Our results suggest that city connectivity revealed on the stock watchlist helps identify network factors in asset pricing.

Behavioral theories predict that firm valuation dispersion in the cross-section (‘‘dispersion’’) measures aggregate overpricing caused by investor overconfidence and should be negatively related to expected aggregate returns. This paper develops and tests these hypotheses. Consistent with the model predic- tions, I find that measures of dispersion are positively related to aggregate valuations, trading volume, idiosyncratic volatility, past market returns, and current and future investor sentiment indexes. Disper- sion is a strong negative predictor of subsequent short- and long-term market excess returns. Market beta is positively related to stock returns when the beginning-of-period dispersion is low and this rela- tionship reverses when initial dispersion is high. A simple forecast model based on dispersion signifi- cantly outperforms a naive model based on historical equity premium in out-of-sample tests and the predictability is stronger in economic downturns.

Beyond a bias toward local stocks, investors prefer companies in certain cities over others. This study uses the geographic network of investor-followed stocks from stock watchlists to identify intercity investment preferences in China. We measure the city-pair connectivity by its likelihood of sharing an investor in common whose stock watchlist is highly concentrated in the firms of that city pair. We find that a higher connectivity-weighted aggregate stock demand-to-supply ratio across connected cities is associated with higher stock valuations, higher turnover, better liquidity, and lower cost of equity for firms in the focal city. The effects are robust to controls for geographic proximity and the broad investor base, are stronger among small firms, extend to stock return predictability, and imply excess intercity return comovement. Our results suggest that city connectivity revealed on the stock watchlist helps identify network factors in asset pricing.

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.

This paper provides a first systematic analysis of urban vibrancy in human capital supply in explaining persistent geographic firm valuation dispersion in China. We find persistent, significant city-to-city differences in Tobin’s q, especially among large, mature, or high labor-intensive firms. To explain such geographic differences in firm valuations, we identify several factors of the endowed city competitive advantages in creating human capital that play important roles in explaining the persistent geographic firm valuation premia. Our evidence suggests that city geographic location and initial cumulated human capital supply have created long-lasting, and growing, shareholder wealth by attracting and retaining talents and human resources in local firms.

We examine the effects of the world’s first comply-or-explain dividend regulation in China’s Shanghai Stock Exchange, which requires firms to either pay at least 30% of profits as dividends or explain the use of funds. We find that many firms increased their payout ratio to comply, by increasing dividends or decreasing earnings. Firms with high profitability, state ownership, and fewer agency conflicts were more likely to comply. However, complying firms subsequently issued more debt and had a decline in accounting performance and firm valuation. The evidence suggests that the comply-or-explain regulation increased firms’ dividends at substantial costs.

We study the impact of directors with foreign experience on firms in emerging markets. To establish causality, we use a unique dataset from China and exploit that at different times, Chinese provinces introduced policies to attract highly talented emigrants. These policies led to an exogenous increase in the supply of Chinese individuals with foreign experience in the local labor market and ultimately increased the likelihood that firms in these provinces had directors with foreign experience in comparison to firms with a similarly high demand for these skills elsewhere. We document that hiring directors with foreign experience results in higher firm valuation, productivity, and profitability. Furthermore, corporate governance improves and firms are more likely to make international acquisitions, to export, and to raise funds internationally. These results indicate that the transfer of knowledge to emerging markets occurs not only through foreign investment, but also through labor flows and, in particular, return migration.

We examine the impact of renminbi revaluation on foreign firm valuations, considering two surprise announcements of changes in China’s exchange rate policy in 2005 and 2010 and employing data on some 6,000 firms in 44 economies. Stock returns rise with renminbi revaluation expectations. This reaction appears to reflect a combination of improvements in general market sentiment and specific trade effects. Expected renminbi appreciation has a positive effect on firms exporting to China but a negative impact on those providing inputs for the country’s processing exports. Stock prices rise for firms competing with China in their home market but fall for firms importing Chinese products with large imported-input content. There is also some evidence that expected renminbi appreciation reduces the valuation of financially-constrained firms, presumably because appreciation implies reduced Chinese purchases of foreign securities. The results carry over when we consider ten instances of market-perceived changes in prospective Chinese currency policy.

This paper examines the impact of renminbi revaluation on foreign firm valuation and, by implication, firm prospects. To deal with the potential endogeneity of exchange rate movements, we consider not just official announcements of exchange rate policy but also 27 instances of market-perceived changes in China’s currency policy driven by domestic or foreign political pressure. Using information on 12,300 firms in 44 countries, we find that stock returns increased with renminbi revaluation expectations. This reaction was related as much to improved market sentiment as to specific trade channels, however. In terms of trade channels, we find that expectations of renminbi appreciation reduce the relative stock returns of firms providing components and raw materials to China as inputs for the country’s exports. There is also some evidence that expectations of renminbi appreciation reduce the stock prices of financiallyconstrained firms.