Common Ownership and Product Market Competition: International Evidence [Job Market Paper]
Abstract: Firms with common ownership have superior product market performance around the world. Using ownership data across 68 countries between 1998 and 2019, I show that commonly held firms experience significantly higher market share growth than non-commonly owned firms, after controlling for macroeconomic trend, institutional ownership, and blockholders. This effect is mainly driven by domestic and active common institutional investors. Exploiting staggered passage of national competition law, I differentiate the two channels through which common ownership may affect product market competition: efficiency-improving coordination and welfare- destroying anti-competitive effects. The influence of common ownership on market share growth is more prominent in countries with less stringent antitrust law and weaker legal protection in which the penalties of collusion are less. I also document that firms increase their markups after being commonly held, suggesting enhanced market power. My evidence is more consistent with the anti-competitive explanation and challenges the coordination hypothesis, which has critical antitrust implications.
Presentations: Imperial College London, Bath University, The University of Hong Kong, Global Research Alliance for Sustainable Finance and Investment (GRASFI, Columbia University)
Abstract: This paper documents the spillover effects of a place-based green finance program. Exploiting the unique setting of the world’s first green finance pilot program in China, we adopt a difference-in-difference design and find that the launch of pilot zones led to better environmental performances. While the pilot places do improve their environmental performance, we find even greater improvement from other regions. The spillover effect is mainly driven by the environmental tournament effects among local officials when assessing their political achievements. Specifically, non-pilot zone areas with younger local government leaders and higher state ownership improve more. Overall, we find that place-based green finance policies not only create direct positive impacts but also impose positive incentive externalities to other regions.
Abstract: Despite the surging investor demands for corporations’ commitment in environmental, social, and governance (ESG) issues, little is known empirically about the type of compensation that incentivizes CEOs’ social responsibility. Our paper investigates this question from the perspective of CEOs’ incentive horizon. We find consistent evidence that firm ESG performance declines when managerial short-term incentive becomes stronger. We establish causality by exploiting the plausibly exogenous variation in option acceleration due to FAS 123-R’s staggered compliance dates. The findings are robust to an alternative identification strategy. Together, the evidence suggests that CEO compensation that promotes long-termism is critical for ESG.
International Climate Shocks Spillovers: Evidence from Cross-Border Bank Flow [Draft available upon request]
Presentations: Warwick Business School, 32nd Australasian Finance and Banking Conference, 7th Summer School on Climate Change and Bahaviour, Global Research Alliance for Sustainable Finance and Investment (GRASFI, Oxford University)
Abstract: This paper studies the transmission of climate shocks across countries due to cross-border bank flow. In particular, I examine the banks’ liquidity shocks caused by climate change and focus on its consequences on cross-country bank lending. Using Bank for International Settlements (BIS) data across 128 countries, I find robust evidence that the source country will substantially lend less to recipient countries owing to source countries’ higher climate risk. The effect is more pronounced when the source country is more reliant on bank financing. I also exploit an exogenous shock to US banks caused by Hurricane Katrina in 2005, and diff-in-diff estimation reveals that affected banks reduce cross-border syndicated loans. Concurrently, the effect is mitigated if the banks have a stronger lending relationship, a higher capital adequacy ratio, and there is sufficient coverage from the insurance market. Therefore, we may need country collaboration and coordination in response to climate change.
Do shareholders benefit from green bonds? (with Dragon Tang), 2020, Journal of Corporate Finance 61, 101427.
Presentations: The University of Hong Kong, 2017 HK PolyU/Journal of Corporate Finance Special Issue Conference, 2018 Shanghai Green Finance Conference, 2018 China International Conference in Finance (CICF), 2018 UN PRI Academic Network Conference, and the 2018 Conference on “Scaling up Green Finance: The Role of Central Banks” at Deutsche Bundesbank.
Abstract: The green bond market has been growing rapidly worldwide since its debut in 2007. We present the first empirical study on the announcement returns and real effects of green bond issuance by firms in 28 countries during 2007–2017. After compiling a comprehensive international green bond dataset, we document that stock prices positively respond to green bond issuance. However, we do not find a consistently significant premium for green bonds, suggesting that the positive stock returns around green bond announcements are not fully driven by the lower cost of debt. Nevertheless, we show that institutional ownership, especially from domestic institutions, increases after the firm issues green bonds. Moreover, stock liquidity significantly improves upon the issuance of green bonds. Overall, our findings suggest that the firm's issuance of green bonds is beneficial to its existing shareholders.
Is “Greenness” Priced in the Market? Evidence from Green Bond Issuance in China (with Zhiyao Deng and Dragon Tang), 2020, Journal of Alternative Investments 23 (1) 57-70
Abstract: Green bonds are bonds with a defined use of proceeds toward mitigating and adapting to climate change and solving environmental problems. Although the green bond market has expanded rapidly in recent years and has attracted great investment attention, whether investors can identify greenwashing behaviors remains a primary concern. This article takes advantage of the unique feature of the Chinese green bond market that allows a proportion of the proceeds to be used for nongreen purposes. The authors find that greener bonds (more proceeds are used for green projects) are sold at a premium. This pricing differential is primarily driven by bonds with proceeds used 100% for green projects. The authors also show that green bonds verified by a third party have lower yield spreads and the effect is stronger for more reputable third parties. Overall, the results suggest that investors reward only fully green bonds and that investors can discern “greenwashing.”