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Leverage-Induced Fire Sales and Stock Market Crashes

Jiangze Bian, Zhiguo He, Kelly Shue, Hao Zhou, Dec 03, 2018

The authors find that margin investors heavily sell their holdings when their account-level leverage edges toward the maximum leverage limits. Stocks that are disproportionately held by accounts close to leverage limits experience high selling pressure and abnormal price declines that subsequently reverse over the next 40 trading days. Unregulated shadow-financed margin accounts contributed more to the market crash even though these shadow accounts had higher leverage limits and held a smaller fraction of market assets.

The Impact of Corporate Taxes on Firm Innovation: Evidence from the Corporate Tax Collection Reform in China

Jing Cai, Yuyu Chen, Xuan Wang, Dec 19, 2018

We explore a tax reform on manufacturing firms in China in order to study the impact of taxes on firm innovation. The reform switched corporate income tax collection from a local to state tax bureau and reduced the effective tax rate by 10 percent. The reform only applied to firms established after January 2002, allowing us to use a regression...

In the Shadows of the Government: Relationship-building during Political Turnovers

Hanming Fang, Zhe Li, Nianhang Xu, Hongjun Yan, Mar 06, 2019

We document that firms use two instruments to build relationships with local government officials in China: “perk spending” and personnel changes. Following a turnover in the positions of Party Secretary or Mayor of a city in China, firms (especially private firms) headquartered in that city significantly increase their perk spending...

Optimising Production: Industrial Policies in Networks

Ernest Liu, Mar 13, 2019

Many developing countries adopt industrial policies favoring upstream sectors. Liu (2018) shows these policies might enhance aggregate production efficiency. When sectors form a production network, market imperfections generate distortions that compound through input demand linkages, accumulating into upstream sectors and creating an incentive for well-meaning governments to subsidize these sectors. The study proposes the measure “distortion centrality,” which is a sufficient statistic that can guide policy interventions in arbitrary networks. Distortion centrality predicts sectors that were promoted in South Korea in the 1970s and modern-day China, suggesting that these policies might have generated positive aggregate effects.

In-Consumption Social Listening with Moment-to-Moment Unstructured Data

Qiang Zhang, Wenbo Wang, Yuxin Chen, Jan 03, 2019

Major video and live streaming platforms in China have recently introduced a live commenting feature that allows viewers to post comments in real time during video content consumption. Building on the rich live comment data, this research proposes a novel approach for in-consumption social listening to extract live consumption experience. The approach is demonstrated in the context of online movie watching...