A Bridge on Economic Issues between China and the World
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What Gets Measured Gets Managed: Investment and the Cost of Capital
Zhiguo He, Guanmin Liao, Baolian Wang, Aug 09, 2023To improve capital allocative efficiency, starting in 2010, Chinese regulators switched from using return on equity to economic value added (EVA).
Window Dressing in the Public Sector: Evidence from China’s Compulsory Education Promotion Program
Hanming Fang, Chang Liu, Li-An Zhou, Nov 15, 2023We document public-sector window dressing behavior in China’s Compulsory Education Promotion Program during the 1990s. Window-dressing behavior has been well-documented in various organizations when an agent faces high-stakes incentives.
The Pre-Announcement Drift in China: Government Meetings and Macro Announcements
Jun Pan, Qing Peng, Mar 20, 2024Confirming Chinese equity market is policy-driven, this study reveals a significant pre-Govt return before top government meetings, akin to the US pre-FOMC drift. It highlights the market's anticipation of these events and their impact on asset pricing, underscoring the centralized financial system in China.
Overpricing in Municipal Bond Markets and the Unintended Consequences of Regulatory Measures: Evidence from China
Laura Xiaolei Liu, Qiao Liu, Xiaoyu Liu, Ni Zhu, Dec 03, 2024Chinese municipal bonds are considerably overpriced in the primary market, leading regulators to set a lower bound on the issuance yield spread. This paper investigates the underlying reasons for this overpricing and evaluates the effects of implementing restrictions on yield spreads. Our findings indicate that underwriters may inflate prices to receive undisclosed benefits from local governments, such as local treasury cash deposits. We further show that the lower bounds severely impede price discovery in the primary municipal bond market. Even bonds not restricted by the lower limit are priced at the reference spread, exacerbating overpricing of riskier bonds. Local governments exploit these fixed prices by increasing the bond issuance amount and extending bond maturity. Our findings suggest that regulatory interference in pricing can have unintended consequences for pricing efficiency and that attempts to rectify mispricing may result in even more severe mispricing.
Financial Spillovers of Foreign Direct Investment: Evidence from China
Haoyuan Ding, Shu Lin, Shujie Wu, Haichun Ye, May 08, 2024Foreign Direct Investment (FDI) has enhanced the financial conditions of Chinese enterprises, particularly through the financial spillover effects generated by supply chain connections, which have helped to reduce the burden of trade credit and increase opportunities for bank financing.
