We examine the impact of political connections on the investment decisions of Chinese mutual funds. We identify a direct link between mutual funds’ political connections and stocks held from the same political network using hand-collected information on the professional backgrounds of Chinese mutual fund managers and fund management company (FMC) shareholders. While mutual funds tend to allocate more investments to stocks based on their political connections, this effect alleviates somewhat after the 2012 anti-corruption campaign. Our findings suggest that anti-corruption campaigns can help to reduce the political effects of government-related agencies on fund holdings and contribute to better market fairness.

This paper comprehensively examines how subjective well-being (SWB) is influenced by various aspects of housing — tenure, living conditions, and housing values — based on an individual panel from the China Household Finance Survey. We employ a two-way fixed effects model to reduce the endogeneity problems of housing choices. Our findings suggest that housing plays a comparable role to income and wealth in SWB and that housing inequality and living experience both matter a great deal. Moreover, the positive impacts of home ownership on SWB reported by prior research are likely quality of life effects masked in home ownership. Results are robust to ordered logistic estimation with individual fixed effects. What we document carries important implications for housing policies, and these are generalizable to other countries.

Family responsibility is a fundamental social concept that has a profound and long-lasting impact on people’s behavior, especially in China. Using the Chinese premarital check-up rate of the CEO’s birthplace as a proxy variable for the CEO’s sense of family responsibility, we examine its impact on firm environmental, social, and governance (ESG) performance. Our results show that the CEO’s sense of family responsibility can significantly improve firm ESG performance. We identify three possible channels behind this effect: curbing corporate violations, promoting green transformation and increasing charitable investments. Further analysis shows that the effect is more pronounced for firms with a strong Confucian cultural atmosphere. However, the promotion effect becomes weaker when the CEO has overseas experience. Moreover, the improvement in ESG performance driven by family responsibility may help firms to increase total factor productivity. Overall, our study provides evidence on the impact of CEO’s family responsibility, an informal institution, on firm ESG performance.

Mainland China traditionally maintained the one-share-one-vote (OSOV) principle. Since 2019, however, Chinese authorities have introduced rules supporting the dual-class equity structure (DCES) for “innovative enterprises.” Due to concerns about investor-protection issues, China’s DCES currently operates as a “stringent permit system,” and as of the end of June 2023, only eight corporations have achieved listings with DCES adopted. This article provides a broad and profound policy analysis of the Chinese DCES system, including empirical analyses on the eight existing DCES cases. Also, this article explores the legal and economic aspects of investor-protection issues with respect to the China’s DCES. Regarding DCES rules in the context of investor protection, this article examines “three sets of investor safeguard measures”: (1) “three numerically speciffed rules” (this article calls the three rules the “10% equity rule,” the “10-time voting-right rule,” and the “2/3 voting-right rule”); (2) “sunset provisions” (such as event-driven sunset and time-based sunset); and (3) “rules converting special-voting shares (shares with higher voting rights) into shares with one vote” (such as conversion in mergers and a conversion in an amendment of the charter). Due to the concerns about the prevailing practice of tunneling in China, this article argues in favor of the “DCES with enhanced investor protection.” To foment founders’ entrepreneurship and allow more corporations with the DCES, however, this article recommends that the Chinese authorities gradually relax the implementation of the current DCES system of de facto stringent permit system. The future relaxation of the stringent permit system will also be beneffcial for China because, as a result of the escalated tension with the U.S., China has already lost a substantial portion of its reliable DCES-IPO markets in the U.S. Also, DCES-IPO markets in Hong Kong is still inactive. Thus, the establishment of viable DCES-IPO markets will soon be necessary in Mainland China.

This study explores the relation between financial uncertainty and volatility in China. The time variation in financial uncertainty shocks is theoretically closely related to stock return dynamics. Empirically, the financial uncertainty measure is based on a large set of economic and financial variables and captures its unpredictable component. Over the sample period from 2000 to 2021, we find that financial uncertainty positively impacts the trend component of market volatility and that it improves volatility predictions in both statistical and economic terms. Our study sheds new light on the sources driving volatility and the dynamic relation between uncertainty and volatility components.

This paper examines the relationship between controlling shareholder equity pledges and their pricing using data on new debt financing instruments issued by Chinese A-share listed companies from 2010-2021. The findings suggest that controlling shareholder equity pledges lead to higher credit spreads on new debt financing instruments issued. Further findings suggest that this significant relationship only exists in groups where listed companies are on the eastern seaboard, where there is a higher risk of the share price collapse, and where management is more competent. It was also found that this relationship was not heterogeneous in the quality of the firm's information environment group and was only significant in the low hollowing out-group, thus ruling the hollowing out hypothesis and the information hypothesis and validating the uniqueness of the control transfer risk hypothesis in this paper.

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We study the role of Chinese government guidance funds (GGFs) in value creation for investee firms. Using a sample of 2,855 firms that went public during the period of 2010-2021, we show that GGF-backed IPO firms had higher initial returns than non-VC-backed IPO firms and nonGGF VC-backed IPO firms. After decomposing the initial return into IPO underpricing and market overvaluation, we find that GGF-backed firms enjoyed higher overvaluation and lower underpricing than other firms. Consistent with investor sentiment and information asymmetry hypothesis, our results indicate that public investors value the benefits of political resources more than the costs of government interference associated with GGF sponsoring. However, GGF-backed firms did not outperform other-VC-backed firms when post-IPO long-term stock, operating and innovation performance is assessed. The divergence in the effects of GGFs observed in the financial and product markets reveals the complexity in evaluating the role of GGFs in value creation.

We examine the rise of cloud computing and AI in China and its impact on industry dynamics. We find that industries that depend more on cloud infrastructure experience a higher increase in firm entry and exit after cloud computing expands in China. The positive relation with firm exit is driven by the increased exit through business failure and adjustments. We also compare cloud computing to artificial intelligence (AI) and show a differential effect of these technologies on exit. For AI, larger incumbents are less likely to exit. M&A is also more likely for cloud computing but not for AI. Concentration decreases post-cloud computing expansion but increases post-AI. These findings point to changes in competition from new technologies but with differential effects based on which types of firms are likely to adopt new technologies.

In contrast to previous literature, our study not only examines the communicative value of Key Audit Matters (KAMs) through the capital market reaction to KAMs but also analyses the content and reporting format of KAMs, which vary based on the intrinsic risk of business activity. Using a sample of Chinese firms from 2017 to 2020, we find that more M&A-related KAMs are reported and they are disclosed through less boilerplate language when M&As are accompanied with the Performance Commitment contracts (PCs), an indicator as high possibility of overpayment during M&As thus inducing the high risk of the goodwill impairment and high litigation risk. Additionally, we find that the negative impact of PCs on boilerplate language is amplified when the benchmark in PCs is precisely achieved or when the firm has been sued in recent years. In other words, the disclosure of M&A-related KAMs is more tailored to the client firm when auditors observe a high risk for accountability. Consequently, capital market participants, as well as other recipients of auditing reports, such as regulators and analysts, perceive non-boilerplate M&A-related KAMs as informative for their decision-making process.