When companies select and use compensation peers to determine chief executive officer (CEO) compensation, they create unintended peer effects on corporate innovation due to the similarities between ...these companies and their compensation peers in terms of product markets, CEO characteristics, and compensation schemes. After controlling for industry and geography peer groups, the findings confirm that the average innovation activity of compensation peers is a significant and distinct predictor of corporate innovation. Further analysis showed that (1) the peer effect is stronger in firms and compensation peers that pay their CEOs using long-term compensation, in firms with stronger labor market competition and board monitoring, and in peer companies that experience higher innovation competition and are closer to the median peer company in the peer group; (2) the obtained results are likely not attributable to the knowledge spillover mechanism and are more consistent with the peer pressure mechanism; and (3) the Securities and Exchange Commission's 2006 executive compensation disclosure rules may have generated peer effects.
In this article, the authors propose a variance-dependent explanation for the contradiction between skewness preference and low expected return concerning lottery stocks. They emphasize an overlooked ...aspect of skewness as a risk measure: the return uncertainty of extreme events. They show that, during periods of low market volatility, investors dislike large-skewness securities owing to a fear of uncertain results. Thus, one observes a positive relation between skewness and expected return because the security is currently undervalued. Conversely, negative associations occur in high-volatility environments. This conditional skewness–return nexus is demonstrated to possess return predictability and can help in adjusting portfolios with profitable buying and selling decisions. Key Findings ▪ The authors propose variance-dependent skewness to reconcile the skewness preference for lottery stocks with their actual low expected returns. ▪ They emphasize skewness as a risk measure of the return uncertainty of extreme events. ▪ The authors construct portfolios based on the return predictability of skewness conditional on volatility and show that these portfolios remain profitable after considering transaction costs and restrictions on short sales.
This paper examines the valuation effect of capital account liberalization. Using an event study approach and the policy announcement for RMB Qualified Foreign Institutional Investors (short for ...RQFII) as the event date, we find that overall, the stock market responded positively to the capital account liberalization announcement. In addition, we provide some heterogeneity that firms with more stringent financing constraints earn higher returns than their counterparts. Finally, existing local institutions play an important role in determining announcement returns.
We conceptualize that CEOs who endure traumatic experiences stemming from man-made disasters practice less corporate social responsibility. We exploit a natural experiment—the Great Chinese Famine—to ...empirically test this hypothesis. We find that (i) firms with CEOs who experienced the Great Chinese Famine score lower in corporate social responsibility ratings than a comparison group; (ii) this relationship is mainly driven by prosocial practices tied to employee relations, environmental protection, supplier relations, and community contributions; and (iii) this negative relationship is more pronounced in firms whose CEOs were younger when they experienced the famine, (iv) the positive relationship between CSR scores and firm value is more pronounced in firms with CEO without famine experiences. These results are robust in the face of several sources of endogeneity. Our study contributes to ongoing research regarding how top executives' early experiences affect their managerial decisions. It also enriches work surrounding corporate social responsibility and the plausibly exogenous determinants of prosocial preferences.
•Firms with CEOs who experienced the Great Chinese Famine score lower in corporate social responsibility ratings than a comparison group.•This negative relationship is more pronounced in firms whose CEOs were younger when they experienced the famine.
This paper applies a difference‐in‐differences framework to explore the economic consequences of the recent U.S.–China trade war. The average abnormal returns of Chinese listed firms during a period ...centered on President Trump's announcement on 22 March 2018 are taken as a proxy for the firms' exposure to the potential trade war. Firms more negatively exposed are found, surprisingly, to report higher total revenues in the post‐announcement period. The results indicate that the Chinese firms tend to reallocate their business from overseas to the domestic market. Such within‐firm reallocation is found to be more pronounced among private firms, exporting firms and non‐FDI firms. Besides, firms with higher negative exposure increase total investment and financing but decrease foreign investment after the trade war.
This study investigates the relationship between firms’ export performance and prior investment experience in the corresponding country by using a novel dataset of Chinese firms. We find that a ...firm's export performance, in terms of value, quantity, unit price level and product varieties, is considerably better in destination countries where the firm has previously invested. The patterns are more pronounced when exporters are non‐state‐controlled or small‐sized firms. Our analysis also shows that such country‐specific outward foreign direct investment experience can facilitate firm exports by bridging country‐pair physical and cultural distances and overcoming contractual barriers in destination countries. The data further imply that the positive effect partly stems from the purpose of local production.
Capital inflows have a strong presence that influences destination countries' development of institutions, which can in turn help resuscitate a stopped economy and re-attract capital that was lost ...during crises such as the recent public health crisis. While the previous literature emphasizes the mechanism that foreign investors press or even threaten the local government for change, this paper explores empirically whether institutional improvement can be achieved through the channel that host countries voluntarily reform institutions in anticipation of potential investments predicted by the exogenous geographical and cultural characteristics of the recipient countries. Given that countries with better institutional quality can accumulate larger FDI stocks, we still find that the need for more FDI, in contrast to FPI and debt, gives higher incentives to host countries to strategically improve their institutions before seeking capital overseas. Moreover, the predicted FDI exerts more prominent impacts on institutions on constraining elite than those involved in launching a business, enforcing contracts, and protecting properties. The results imply that a long-run plan for upgrading elite constraint institutions is crucial for a post-pandemic FDI reboot.
Greater personal responsibility toward financial decision-making is being advocated on a global basis. Individuals and households are encouraged to take a more active approach to personal finance. In ...this paper, we examine behavioral factors, which lead households toward savings and financial planning across a panel of 1253 Dutch households. In line with the available literature, we find that an individual's propensity to save decreases with age and is higher among the financial literate. Moreover, we find that saving behavior varies across generations, and is significantly dominant among baby boomers. This generation effect, however, weakens once we account for more individual specifics. Our results offer evidence for parental influence, and for the effects of the psychological and behavioral metrics of numeracy, self-efficacy, locus of control and future orientation. A good understanding of these personality variables helps to explain why some take financial responsibility while others do not.
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