We investigate the economic impact of artificial intelligence (AI) adoption in the mutual fund industry by introducing a novel measure of AI adoption based on the presence of AI skilled personnel at fund management firms. We provide robust evidence that AI adoption enhances fund performance, primarily by improving risk management, increasing attentive capacity, and enabling faster information processing. Furthermore, we find that mutual funds with higher levels of AI adoption experience greater investor net flows and exhibit lower flow-performance sensitivity. While AI adoption benefits individual funds, we find no evidence of aggregate performance improvements at the industry level.

The economic institutionalist literature often suggests that sub-optimal institutional arrangements impart unique distortions in China, and excessive corporate debt is a symptom of this condition. However, lax monetary policies after the global financial crisis, and specifically, quantitative easing have led to concerns about debt bubbles under a wide range of institutional regimes. This study draws on data from Chinese listed firms, supplemented by numerous macroeconomic control variables, to isolate the effect of international capital flows from other drivers of firm leverage. We conclude that the rise in, and distribution of, Chinese corporate debt can partly be as-cribed to the effects of monetary policy outside of China and that Chinese institutional features amplify these effects. Whilst Chinese firms are affected by developments in the global financial ecosystem, domestic institutional realities and distortions may unevenly add their own particular effects, providing further support for and extending the variegated capitalism literature.

A unique natural experiment in China – the city-level staggered introduction of admin-istrative approval centers (AAC) – reduces bank loan processing times by substantially speeding up the process of registering collateral without affecting credit decisions. Fol-lowing the establishment of an AAC, firms significantly reduce their cash holdings. State-owned enterprises are less affected. Cash flow sensitivity of cash holdings de-creases, as does the cash flow sensitivity of investment. The share of short-term debt increases, while inventory holdings and reliance on trade credit decrease. Defaults also decrease. These results suggest that timely access to credit has important implications on firms’ financial management.

This paper revisits the default-crash risk relation in the context of China. We find that firms with higher default risk have lower stock price crash risk both in monthly and yearly frequencies. To identify the causal effect, we use the first-ever default event in China’s onshore bond market in 2014 as an exogenous shock to the strength of implicit guarantees. The negative relation arises from the active involvement of the government before 2014 and creditors after 2014 in corporate governance. Consistent with the external scrutiny mechanism, the impact of default risk on stock price crashes is stronger in situations in which creditors are more likely to engage in active monitoring (i.e., firms with higher liquidation costs, lower liquidation value, and higher levels of information asymmetry), with these effects primarily observed in the post-2014 period. Overall, our study highlights the role of the “invisible hand” in the absence of the “visible hand.”

As digital transformation strategies have emerged as a primary approach for enterprises to enhance their Total Factor Productivity (TFP), it is crucial to empirically examine the impact of these strategies on TFP. For this purpose, this study considers these transformation strategies as a quasi-natural experiment and employees a propensity score-weighted difference-indifferences methodology on data from Chinese firms listed on the A-share market between 2007 and 2020. The key findings include: (1) digital transformation has a significant positive influence on TFP; (2) Generalized boosted regression trees analysis reinforces this finding after controlling for other TFP determinants; (3) notably, non-state-owned and technology-intensive enterprises exhibit a more distinct enhancement in TFP following digital transformation. These results underscore the need for firms to increase investment in research and development capabilities and digital competencies.

We (re)evaluate the general-equilibrium effects of (environmental) policies from the perspectives of input-output networks and firm dynamics and heterogeneity. Using China’s carbon emission trading system (ETS) as an example, we find that ETS leads to more patent applications, especially the ones associated with low-carbon technologies in the targeted sectors. The effects are muted at the firm level due to selection effects, whereby only larger firms are significantly and positively affected. Meanwhile, larger firms occupy a small share in number but a large share of aggregate outcomes, contributing to the discrepancy between the effects of ETS at the individual firm and aggregate sector levels. The effects also diffuse in input-output networks, leading to more patents in upstream/downstream sectors. We build and estimate the first firm dynamics model with input-output linkages and regulatory policies in the literature and conduct policy experiments. ETS’s effects are amplified given input-output networks.

Using data from Chinese A-share listed firms from 2015 to 2022, we employ a difference-in-differences model to empirically examine the impact of bankruptcy regimes, marked by the establishment of bankruptcy courts, on firms’ total factor productivity (TFP). The results show a significant decline in TFP among firms in regions following the establishment of bankruptcy courts. This finding remains valid after a series of robustness tests. Mechanism tests reveal that establishing bankruptcy courts increases firms’ risk aversion incentives by endowing creditors with excessive rights. Consequently, firms tend to reduce liabilities, curtail R&D investment, and accumulate liquid assets as coping measures, ultimately contributing to a decline in TFP. Furthermore, this effect is more pronounced for firms with high financial risk. However, the improvement of the market mechanism can alleviate the negative impact of bankruptcy courts excessively strengthening creditor protection. Specifically, when firms are located in regions with weak government intervention and strong financial development, as well as in market environments with low uncertainty and strong competition, this negative impact can be mitigated. These findings provide fresh insights into the dual nature of creditor protection and offer valuable references for governments to improve the bankruptcy legal system.

This study examines how localized carbon reduction policies affect corporate environmental productivity. Leveraging a quasi-experiment from China’s low-carbon pilot policy rollout across cities, we implement a difference-in-differences approach to estimate the causal impact of these interventions. Pilot policies significantly increased regulated polluting corporate environmental productivity by around 3 percentage points. The productivity gains persisted over time and were greater for financially constrained firms, firms facing less market competition and with lower capital intensity. Additional analysis reveals the pilots enhanced executive environmental awareness. Overall, our results demonstrate appropriately designed local regulations can improve environmental productivity.

Exploiting a unique market-oriented media reform initiated in 1996 in China, we investigate the role of media environment in affecting firm behaviour. We find robust evidence that market-oriented media environment is conductive to firm innovation, with the reform promoting patent quantity and quality substantially. The effect is more pronounced for firms with higher information asymmetry. Matching firm data with 1.3 million news reports, we find the market-oriented media reform significantly improves the criticalness and unbiasedness of news coverage and shapes an innovation-friendly environment. Our findings highlight economic outcomes of relaxing media control and underline substantial gains from deepening the reform.

Do firms adjust their hiring decisions after receiving environmental punishments? Using data on over 4.3 million job postings for Chinese listed firms from 2015 to 2021, we find that firms subjected to environmental punishments will subsequently increase their corporate green hiring (i.e., employees with green skills). Pressure from local environmental concerns and regulatory efforts incentivizes firms to increase their demand for employees with green skills. Environmental punishments have a more pronounced effect on corporate green hiring for non-state-owned enterprises and firms with lower financial constraints. Moreover, green hiring can have a remediation effect on firms' environmental performance and stimulate their green innovation activities and spillover effects on other firms within the industry. Overall, our findings shed light on corporate hiring decisions under environmental regulations.