This paper examines the fiscal motives behind municipal governments' decisions to allocate commercial and residential land when two categories of land use are subject to different fiscal revenue alternatives: business-related tax and/or land rent. We use urban parcel-level land transfers during China’s peak period of urbanization, match commercial parcels with residential parcels, and find significant price discounts on commercial parcels relative to adjacent residential parcels. The observed discounts arise from the future tax flows from commercial use, i.e., expected taxes from developed commercial land reduce its transfer price. We conduct a structural estimation to examine the implications on land use structure of future taxes lowering land transfer prices. Results show that while prospective taxes increase commercial land supply, a significant portion of the favorable treatment impact is mitigated by market price responses, suggesting that the land market counters commercial land favoritism when local revenues include both business-related taxes and land value-based charges. The results have implications for the design of urban public revenue systems.

This study examines factors that determine prefectural industrial policies and their impact on firm total factor productivity (TFP), utilizing a natural language processing algorithm and data from the Report on the Work of the Government in China. We find that compliance with upper-level governments is crucial in shaping prefectural industrial policies. When an industry is favored by the upper-level government, the probability of the prefectural government’s favoring that industry increases. However, prefectural policies driven by political compliance have a minimal positive impact on TFP, due to inadequate implementation of policy measures like tax deductions, preferential loans, and land price discounts.

This study examines factors that determine prefectural industrial policies and their impact on firm total factor productivity (TFP), utilizing a natural language processing algorithm and data from the Report on the Work of the Government in China. We find that compliance with upper-level governments is crucial in shaping prefectural industrial policies. When an industry is favored by the upper-level government, the probability of the prefectural government’s favoring that industry increases. However, prefectural policies driven by political compliance have a minimal positive impact on TFP, due to inadequate implementation of policy measures like tax deductions, preferential loans, and land price discounts.

This paper investigates what drives the price disparity to vary in the “twin” shares (A shares traded largely by domestic investors while B- and H- shares traded mainly by foreign investors) in China. Extending the variance decomposition framework of Vuolteenaho (2002), we decompose the unexpected price disparity into two terms: difference in expected return news and difference in cash flow news. Our results show that difference in expected return news overwhelmingly dominates difference in cash flow news in driving the variation of the price disparity. This suggests that to a large extent, market or macro news, rather than firms’ specific news, moves the price disparity of the twin shares.

Trading constraints with unspecified constraint horizon are imposed on the shares held by the state in the IPO of each listed firm in China Stock Market. In 2005, a so-called Split Share Structure Reform (also known as Division Reform) was launched in which the holders of restricted shares give up a proportion of their shares to purchase the right to terminate the trading constraint. From the size of the compensation, we infer the value of restricted shares and find that their price discounts are negatively affected by the restriction looseness captured by our proposed new multi-dimensional measure and positively affected by the bargaining power of the holders of freely-traded shares.

Previous studies find mixed results on the relation between exchange rate movement and stock return. We revisit the issue by exploring the effect of market efficiency and heterogeneous investor’s reaction to exchange rate changes using the recent event of Chinese currency appreciation. Our results show that different investor groups react differently to the exchange rate appreciation and that this can be explained by the differences in information access and demand elasticity. In addition, we find that investors with limited investment opportunities react more positively to exchange rate appreciation. Our results suggest that it is important to consider the issues of market efficiency and the differences among investors when one analyzes the relation between exchange rate movement and stock return.

In this article we offer an explanation for price differentials between A and H shares based on the conventional asset pricing theory. We find that the risk premiums associated with the Hong Kong and Mainland Chinese Markets in a two-factor model successfully explain the cross section of returns on the A and H shares. We show that discounts on H shares relative to A shares are highly related to the contemporaneous discounts of H-share local market index relative to A-share local market index, as well as the spread of Hong Kong savings interest rate to Mainland China. The evidence suggests that the risk premiums associated with the segmented A- and H-share markets exert crucial impacts on the price differentials between the two classes of shares. The results thereby indicate that the movements of price discounts of H shares owned by non-Mainland investors in the Chinese stock markets is in accord with the rationality of Chinese investors.