Asset bubbles are important factors affecting the stability of the financial system. This paper analyzes the internal factors contributing to asset bubble formation and their interaction with monetary policy using theoretical models and quantitative simulations. The study introduces rational asset bubbles and labor market frictions within a dynamic New Keynesian model, considering price and wage stickiness. Rational asset bubbles are those that exist within a rational individual framework and generally depend on financial market frictions. Labor market frictions arise from working capital constraints, whereby firms must prepay wages to laborers before production. The model accommodates two equilibrium scenarios: one without a bubble and one with a bubble. Asset bubble formation is entirely endogenous, originating from financing constraints resulting from financial market frictions. The mechanism behind bubble formation is that when a firm's valuation exceeds its fundamental value, collateral value increases and financing constraints loosen, enabling the firm to expand investment and production. Eventually, the firm's value aligns with valuation expectations, self-fulfilling the anticipated asset bubble. The liquidity premium of the asset bubble gives it a positive market price. As financial frictions decrease, the size of the asset bubble also decreases, easing financial constraints, promoting real economic development, and improving investment efficiency. This study provides an important policy perspective for addressing asset bubbles.
The study finds that asset bubbles relax firms' credit constraints, reducing their financial costs during the production process. Consequently, this exerts downward pressure on inflation, forming a core transmission channel described in this paper. Under this channel, even amid economic overheating and rising asset prices, inflation may remain moderate, potentially reinforcing the short-term flattening trend of the Phillips curve. This helps explain why short-term asset price increases might suppress inflation, similar to the economic situation before the COVID-19 pandemic when asset prices rose rapidly while inflation remained relatively moderate. In such scenarios, inflation indicators may be distorted, and monetary policies targeting inflation and output fluctuations may fail to promptly capture marginal changes in the economy, resulting in delayed or inadequate policy actions. Although traditional monetary policy rules stabilize inflation, they may not effectively stabilize the economy, warranting countercyclical interventions in response to asset bubbles.
This study initially examines the relationship between monetary policy and asset bubbles. Although monetary policy does not decisively determine the existence of asset bubbles, its adjustment measures can influence their magnitude. The findings align with the common view that low interest rates and accommodative monetary policies may further expand asset bubbles, whereas tightening monetary policies can curb the size of bubbles. Next, the study considers the feasibility and effectiveness of the monetary policy of “leaning against the wind” to target asset bubbles. Building upon traditional monetary policy, the “leaning against the wind” monetary policy incorporates partial weighting on asset bubbles or prices as policy objectives. The study reveals that the monetary policy targeting asset bubbles effectively achieves macroeconomic stability goals and enhances social welfare, providing robust conclusions for various shocks. Moreover, even with macroprudential policies aimed at maintaining financial stability, monetary policy targeting asset bubbles remains effective, improving overall social welfare. The quantitative results indicate that a dual-pillar regulatory framework combining monetary policy and macroprudential policies enhances social welfare more effectively than a single-policy framework. Preventing asset bubble risks and enhancing policy effectiveness require better utilization of the dual-pillar policy framework of “monetary policy+macroprudential policy.” The conclusions of this article have important policy implications for improving central banks' monetary policy frameworks.
Furthermore, the application of the model framework in this study can be expanded. Although the focus is on monetary policy, other policies may interact with asset bubbles. Therefore, an important future research direction would be to explore the relationship between asset bubbles, financial stability, economic development, and policy tools within a framework of policy coordination. It should be noted that when discussing whether monetary policy should be used to intervene in the case of asset bubbles, this study primarily refers to the broad concept of aggregate asset bubbles and does not consider the policy implications of structural asset bubbles for monetary policy operations. It is important to acknowledge that the decision-making process for monetary policy is highly complex and requires considering various factors and transmission mechanisms. The conclusions of this study simply suggest that when the core mechanism described herein dominates, it might be necessary for monetary policy to intervene in asset bubbles or asset prices. The dominant influencing mechanisms may vary over different periods, and the emphasis of monetary policy operations may also differ.

In August 2020, the People's Bank of China released a white paper entitled “Participating in International Benchmark Interest Rate Reform and Improving China's Benchmark Interest Rate System”. This highlights that China's money, bond, credit and derivatives markets have each developed their own benchmark interest rates with considerable credibility, authority and market recognition. Thus, monetary policy shocks in China are transmitted to the financial market through the benchmark interest rate system. Any comprehensive evaluation of China's monetary policy transmission therefore requires a structural perspective to assess the transmission of shocks between benchmark interest rates.
In this study, we incorporate a network perspective into our macro-financial analysis by constructing a structural shock information spillover network. We conduct an empirical analysis of the impact of monetary policy shocks on the interbank benchmark interest rate network. The empirical results reveal the structural characteristics and mechanisms of monetary policy transmission. Our study makes three main contributions to the literature.
In terms of our theoretical contribution, we analyze the formation mechanism of the information spillover network constructed by Diebold and Yilmaz (2012, 2014), hereinafter referred to as the DY spillover network. The information spillover between network nodes reflects two types of correlation: the synchronous correlation between nodes stemming from the effect of common shocks and the dynamic correlation between nodes caused by a “contagion effect”. The total information spillover can be attributed to different common shocks, which enables us to construct an information spillover network of structural shocks that have the same properties as common shocks. The transmission of monetary policy shocks between interest rates can be regarded as the spillover of monetary policy shock information between nodes.
Empirically, we explore the impact of monetary policy shocks on the spillover of the interbank market benchmark interest rate network and conduct a structural analysis of monetary policy transmission. We select the pledged repo rate, interbank lending rate and government bond yield in the interbank market as benchmark interest rates. We then regard these interest rates as nodes and construct a time-varying DY spillover network through the TVP-VAR model, to identify the core nodes of the interest rate network. The empirical results show that the one-day pledged repo rate is the core node of the interest rate network and typically has the largest net information spillover. In terms of inter-market spillover, the money market shows a net information spillover to the government bond market. After identifying monetary policy shocks using heteroscedasticity assumptions, we further explore the impact of these shocks on information spillover between interest rates through regression analysis. The regression results show that the direction of the monetary policy shock spillover is opposite to the direction of the total information spillover: monetary policy shocks significantly reduce the net information spillover of one-day pledged repo rates and monetary policy shock information spills over from the government bond market to the money market.
Finally, we analyze the mechanism of the monetary policy shock spillover pattern identified in the empirical analysis. As government bond yields are more sensitive to monetary policy shocks, shocks identified from government bond yields have stronger predictive power for interest rates than those identified from the money market. China's monetary policy practice has not yet anchored short-term interest rates, and the monetary policy tools examined in this paper have a lag effect on short-term market interest rates. Government bond yields can fully reflect monetary policy shocks through expected effects, while short-term interest rates are more affected by funding liquidity shocks and have weaker transmission capacity for monetary policy shock information. These mechanisms are all supported by empirical evidence.
Our study therefore contributes to a better understanding of the DY spillover network and extends macro-finance research in terms of structural analysis. Our findings reveal the structural characteristics of China's current monetary policy transmission and provide important references for the development of benchmark interest rates during China's monetary policy transformation.

Achieving sustainable development goals has become all the more important as environmental challenges increase. It involves mobilizing extensive funds and improving the resource allocation incentive mechanism. Thus, in addition to government interventions such as taxation and subsidies, financial institutions, particularly commercial banks, must contribute positively. Accelerating the development of green banking requires in-depth and systematic evaluations of the banks' green governance level. In-depth evaluations refer to distinguishing between banks' proactive and passive green practices, and systematic evaluations involve identifying the dual role of banks as “green governors” or “the green governed.” Although widely adopted, the current green evaluation indexes of commercial banks fail to address these issues, which may lead banks to “be stricter with others” and conceal the impetus to continuously boosting green bank development.
Thus, based on the dual role of banks as both governors and the governed in green development, and by distinguishing their proactive versus passive green practices, we construct an evaluation system of bank green governance. We calculate the Green Governance Index of 50 leading commercial banks in China over the 2005-2020 period. We find that first, this index increases gradually and the gap between different types of banks is reduced. Second, proactive and passive green practices jointly determine the overall green level of the banking sector. Finally, we find that “system construction,” “green effects,” or “organizational structure” are successively becoming the main drivers of green governance in these banks. We also investigate how green governance influences banks' returns and risk. We find that (1) an improvement in green governance does not impact a bank's profitability, but can significantly mitigate its risk; (2) green reputation and green costs are two important mechanisms underlying the bank's green governance effects; and (3) a bank's proactive green practices, its role as a green governor, and the green governance of national banks play more important roles in improving performance.
Our findings provide vital insights for practices. First,the government intervention and the market power should dynamically coordinate to mutually promote high-quality green bank construction. Government regulators should clarify the bottom line through green finance policies, provide an external impetus for green bank development, and induce banks the freedom to explore new green governance models and enhance green collaboration among various types of financial institutions. In market terms, commercial banks should effectively utilize their discretion in green governance, fully leverage their initiative and creativity, and largely strengthen their internal green governance forces. Second, the support system for bank green governance can be improved, to more efficiently convert environmental benefits into economic benefits. The green reputation mechanism can be enhanced, by means of establishing external green communication platforms, increasing green bank visibility, and expanding stakeholders' perceptions of green banking concepts and actions through media networks. Green financial supporting policies can also be optimized, to alleviate banks green cost burden and avoid the potential distortion of green governance effects.
Our study also advances literature on green bank on several fronts. First, we construct a green governance evaluation system for commercial banks from organizational management, institutional construction , and green effectiveness dimensions, and establish two sets of sub-indexes, for passive and proactive green governance and for the green governor and the green governed. We therefore comprehensively depict the evolution of China's green banking system. Second, we identify that green reputation and green costs are key channels through which banks can successfully transform green governance into economic benefits. This can guide banks in exploring a development path that balances environmental benefits and financial performance and enhancing their internal motivation to promote green governance. Third, we investigate the different roles of the government and the market in cultivating green bank system in China, which helps to clarify the optimal boundary between the two.Our study therefore helps to explore the synergy effect of a “promising government” and an “effective market” in promoting the high-quality development of green banks.

Banks' common holding of mark-to-market assets can lead to their interconnectedness, and a negative shock-induced fire sale can give rise to risk contagion among such a network of banks, which is a main driver of systemic risk. We investigate how such interconnectedness drives systemic risk by using a theoretical network model and conducting an empirical analysis based on a sample of Chinese listed commercial banks.
We find that the network is robust yet fragile. In our model, high interconnectedness among banks is equivalent to a high level of common risk exposure to the same asset class, and thus contributes more to systemic risk. We define this as the “risk contagion” effect of interconnectedness, which implies that the network is fragile. A high level of interconnectedness can also reduce banks' fire sales, as each bank holds each asset more lightly and thus will suffer fewer losses in a period of distress. Higher interconnectedness can therefore alleviate systemic risk by reducing the initial shocks received by each bank. We define this as the “risk sharing” effect of interconnectedness, which indicates that the network is robust. We also confirm that this risk sharing effect is only significant when a bank's mark-to-market asset portfolio is highly concentrated (a high HHI index), and when it faces large shocks. In contrast, if the portfolio is well diversified or the shock is small, the benefits of risk sharing will be weak, and then the risk contagion effect will dominate.
Our empirical analysis provides further evidence in support of these theories. We collect data and our sample of commercial banks from WIND and the banks' financial report footnotes. For the baseline fixed-effects regression, we find a one standard deviation increase in interconnectedness leads to a 2.6% increase in systemic risk, indicating an overall risk contagion effect. In addition, when a bank's portfolio is highly concentrated and faces large shocks, the magnitude becomes-1.7%, indicating a risk sharing effect. We then use the amount of bond issuance as an instrumental variable for interconnectedness and regard the implementation of a new financial instrument (i.e., accounting rules) in China as a natural experiment, to confirm the causality of the relationship between interconnectedness and systemic risk. Both identification methodologies provide strong causal evidence. In addition, we find that interconnectedness reduces initial shocks when these shocks are large and banks' HHI indices are high, which is consistent with the prediction of the theoretical model. Finally, risk contagion is more pronounced for small and capital-insufficient banks, and risk sharing is more pronounced for large and more geographically diversified banks.
Several meaningful implications for regulators can be drawn from our findings. First, any macroprudential regulation should take common holding interconnectedness into consideration. Our finding that sharing occurs under specific criteria can be helpful when facing a trade-off between the “robustness” and “fragility” of a financial network. Second, regulators can implement flexible policies such as open market operations to encourage banks to adjust their connectedness contingent on the level and concentration of shocks. Finally, to initially deter risk contagion, banks should improve their risk management and regulators can extend their security and currency market span while providing supplementary capital channels to strengthen the banks' anti-risk capabilities.
This paper contributes to three strands of literature. First, we document the “robust yet fragile” feature of the indirect common holding network. Other studies examine either the robustness and fragility of direct interbank lending networks or the fragility of indirect networks, but the robustness of the latter is underexplored. We fill this research gap from both theoretical and empirical perspectives. We also identify the specific condition required for the risk sharing effect (robustness), which can inform the implementation of regulations. Second, we contribute to studies of asset fire sales in the financial market and common holdings by institutional investors. Numerous studies attribute fire sales to institutional investors putting pressure on asset prices and liquidity, thus generating systemic financial risk. However, few studies focus on how to tackle fire sales. We address this question by identifying the risk sharing effect of interconnectedness. Finally, our findings provide further evidence for how fair value accounting affects systemic risk, by examining the impact of a new accounting rule first implemented in China in 2018. This evidence contributes to the debate concerning the procyclicality of fair value accounting and its contribution to systemic risk.

The export pricing capability of a company is a key indicator of its product competitiveness. In 2019, the Central Committee of the Communist Party of China and the State Council detailed four measures in their “Guiding Opinions on Promoting High-Quality Trade Development”: strengthening the industrial foundation for trade, enhancing trade innovation capabilities, improving product quality, and accelerating brand cultivation. These measures were aimed at shifting Chinese export companies from relying solely on cost advantages to competing on quality and structural advantages. In this context, studying the impact of export product quality on exchange rate pass-through can provide valuable policy guidance for Chinese export companies, so they can better manage exchange rate risks, enhance their product pricing capabilities, and promote the high-quality development of foreign trade.
In this paper we address several questions. First, will Chinese export companies adopt a “quality according to market” strategy, whereby they adjust product quality based on the income distribution of the destination country？ Second, how does this approach to quality affect enterprise pricing and, in turn, exchange rate pass-through effects？ Third, what role does the income distribution of export destination countries play in the impact of product quality on exchange rate pass-through effects？ Finally, are there differences in the pricing capabilities of Chinese export companies across different countries？ These questions are important for understanding the evolving landscape of China's foreign trade and for providing policy guidance to export companies as they navigate market fluctuations and changing consumer preferences. The research findings provide several key insights. First, Chinese export companies do tend to adopt a “quality according to market” strategy, by supplying higher-quality products to countries and regions with higher per capita income and lower Gini coefficients. Second, this strategy affects the “price according to market” strategy, and the income distribution in destination countries influences the exchange rate pass-through effect through product quality. Notably, Chinese export companies exhibit greater pricing ability in countries with low per capita income and high Gini coefficients. Finally, the study highlights the importance of improving product quality and diversifying export destinations to promote high-quality development in China's foreign trade.
This paper makes several potential contributions. First, we incorporate income distribution structures into heterogeneous consumer preferences using the Brambilla and Porto (2016) model. The optimal strategies for export companies to implement “quality according to market” or “price according to market” are analyzed when enterprise profits are maximized. Two mechanisms are proposed for the impact of income distribution on exchange rate pass-through effects: through the average quality preference of consumers, which affects enterprise export product quality and thus affects exchange rate pass-through effects, and by regulating the impact of product quality on exchange rate pass-through effects. Second, the influence of income distribution on product quality and exchange rate pass-through effects is examined from the perspectives of income level and income inequality. Third, we calculate the quality of Chinese products at the export company level and destination country consumer level. Our empirical research reveals that product quality from the consumer's perspective has more influence on enterprise product pricing.
We offer the following policy implications. First, Chinese export enterprises should continue to implement diversification measures for export destination countries, particularly to increase export trade to countries along the “Belt and Road” route (most of which are low-income countries). Policy authorities should therefore take the opportunity to “escort” Chinese enterprises to implement diversified measures for export destination countries, particularly in terms of formulating relevant export trade policies to eliminate any concerns of export enterprises. Second, Chinese exporters should continue to improve the quality of their products. “High-quality” is the best weapon Chinese enterprises can employ to deal with the impact of RMB exchange rate changes on export prices, and it is also the most effective approach for Chinese products entering developed markets. Third, our study provides a theoretical basis for implementing the common prosperity policy in China. China's income inequality has currently exceeded the World Bank line, and China has long imported luxury goods at prices much higher than in European countries. China's income inequality is likely to fall with the implementation of the common prosperity policy, making it more likely that China will import cheaper foreign high-quality products to enhance the overall welfare level.

The orderly promotion of the internationalization of the renminbi is emphasized in the 20th National Congress of the Communist Party of China. The renminbi internationalization strategy first emerged when the People's Bank of China, the Ministry of Commerce, and other ministries jointly issued the “Administrative Measures for Pilot Cross-border Trade Settlement in Renminbi” in July 2009. According to these measures, pilot firms are no longer restricted to invoicing their current accounts in foreign currencies, thus offering a zero-break in the internationalization of the renminbi. The role of the renminbi in international settlements is steadily developing, and it has gradually become the world's fifth-largest settlement currency. The pilot program has provided the basic conditions for Chinese exporting firms to avoid foreign exchange exposure in international trade, allowing them to transition from the goal of earning foreign exchange to earning the domestic currency.
Theoretically, whether exporting firms use their domestic currency for trade invoicing does not only depend on external policy permissions, as firm-level bargaining power is required to actively choose the settlement currency in cross-border trade. Only when these two prerequisite conditions are simultaneously met can exporting firms achieve domestic currency settlement in cross-border transactions. The rigid requirements for domestic firms to settle in the domestic currency under the current account have been gradually eliminated since the pilot program for cross-border renminbi settlement was implemented in 2009. However, has the promotion of cross-border renminbi settlement achieved the expected policy goals, and what impact does it have on the economic behavior of exporting firms？
In this study, we examine the impact of cross-border renminbi settlement on the innovation of exporting firms. First, we construct a simplified theoretical model and finds that firms will actively expand their innovation activities to improve productivity under the incentive of higher expected profit targets, as they seek the marginal expected profit increase brought by domestic currency settlement. We then use the policy as a quasi-natural experiment and based on a manually collected list of firms participating in the pilot cross-border renminbi settlement program, we conduct our analysis using the difference-in-differences approach. The empirical results show that participating in cross-border renminbi settlement significantly stimulates innovation in exporting firms. The effect is more pronounced when these firms are more dependent on export revenue, have a larger proportion of exports to non-dominant currency economies, and face more severe currency mismatches. A channel analysis indicates that using domestic currency settlement can overcome the stochastic characteristics of export revenue, leading to a reduction in expected losses and volatility. We also find that using renminbi settlement can improve productivity, while the cost markup rate does not change significantly.
The contributions of our study are as follows. First, unlike other studies of the internationalization of the renminbi that mainly conduct qualitative or theoretical model analyses, we quantitatively examine the innovation incentive effects of the cross-border renminbi settlement policy on Chinese exporting firms. This novel approach provides micro empirical evidence of the issues related to cross-border renminbi settlement and has important policy implications for the orderly promotion of renminbi internationalization. Second, the choice of settlement currency has received increasing attention. Some scholars propose the dominant currency settlement theory to explain the popularity of the U.S. dollar, arguing that using the dollar can reduce transaction costs and optimize firms' resource allocation. However, most of these studies are theoretical. Our study provides empirical evidence and extends the theoretical understanding of settlement currency. Third, we contribute to the limited research into the relationship between settlement currency and firm innovation. The literature on the incentive effect of settlement currency and firm-level bargaining power is mainly limited to theoretical analysis or survey questionnaires, thus lacking quantitative testing using large samples. We therefore provide a valuable extension to this research.

Zombie firms usually pose huge economic and social risks, and they are a stumbling block that restricts the quality and efficiency of a country or region's economy. As China's economy enters the “new normal”, economic growth is slowing, and downward pressure is increasing, the danger of zombie firms is expected to become increasingly prominent. The Chinese government and related departments attach great importance to the problem of zombie firms and have introduced supporting measures to dispose of them. Undoubtedly, the disposal of zombie firms is an important element in promoting the market allocation of factors and optimizing the business environment, and the effective disposal of zombie firms is an important tool to eliminate ineffective supply and promote high-quality economic development. During its 40 years of reform and opening up, China has actively participated in the international cycle and integrated into the international division of labor system with comparative advantages such as labor costs and policy dividends, achieving rapid growth in its scale of exports and thus creating a historical miracle in the area of foreign trade development. However, although China's export trade has grown rapidly, the quality of its exports has improved to a very limited extent and has even declined in individual sectors. According to China's developmental stage and changing environmental conditions, the report of the 20th Party Congress proposes to “enhance the endogenous power and reliability of the domestic cycle and upgrade the quality and level of the international cycle”. The upgrading of manufacturing exports is an important manifestation of the quality and level of the international cycle. We provide possible explanations for the lagging phenomenon of China's manufacturing export upgrading from the perspective of zombie firms, and new ideas for effectively improving the quality and level of China's international circulation in the new era of opening up. All of this work has important theoretical value and practical significance.
First, we theoretically describe the micro-mechanisms through which zombie firms affect non-zombie firms' export upgrading. Second, we conduct an empirical study using Chinese firm-level micro data. We have three main findings to report. First, zombie firms significantly inhibit the export upgrading of non-zombie firms (i.e., normal firms). Second, our mechanism tests show that zombie firms significantly increase the degree of credit constraints of non-zombie firms, and this increase in credit constraints is an important channel through which zombie firms inhibit the export upgrading of non-zombie firms. This inhibitory effect is greater in industries with a higher reliance on external financing. Third, the inhibitory effect of zombie firms on the export upgrading of private and ordinary trade firms is relatively large, and in addition, the inhibitory effect of zombie firms on the export upgrading of non-zombie firms diminishes with improvement of the regional institutional environment.
Our paper makes the following three contributions. First, it is the first to systematically explore the effect of zombie firms on China's manufacturing export upgrading using the latest microdata, thus enriching and expanding the literature on the economic effects of zombie firms in the Chinese context to some extent. Second, this paper enriches the literature on the determinants of export upgrading of Chinese firms to some extent. Most of the literature focuses on the drivers of firms' export upgrading, whereas research on the “negative factors” that may hinder export upgrading is relatively limited. Our study provides a novel explanation for the long-standing phenomenon of relative lag in China's manufacturing export upgrading. Third, this paper systematically investigates the transmission mechanism of zombie firms effects on China's manufacturing export upgrading from the perspective of credit constraints. This approach not only deepens the understanding of the intrinsic relationship between zombie firms and manufacturing export upgrading but also provides a new explanation for the credit constraint problem commonly faced by Chinese firms.

In the “Guiding Opinions on Actively Promoting Supply Chain Innovation and Application” , a key measure is to “Actively and steadily develop supply chain finance (SCF),” to ensure China's position as an important center of global supply chain innovation and application. Governments at all levels in China have issued relevant policies to support the development of local SCF. However, can SCF effectively help enterprises overcome credit rationing and promote overall improvements in their production and operational efficiency？ What are the channels through which SCF can facilitate the upgrading of production and operational efficiency？ These questions are worthy of further exploration.
In this study, we conduct an empirical analysis of the impact of SCF on the production and operational efficiency of listed companies. The analysis is based on the examination of 3.2 million listed company announcements and 1.9 million local government policy documents, from 2007 to 2019. The findings are as follows. First, SCF has a significant positive impact on a firm's total factor productivity (TFP) and efficiency. Second, SCF effectively enhances corporate efficiency through the channels of breaking credit rationing and optimizing enterprise financing, strengthening mutual investment and relationship embedding, and promoting cooperative R&D and enhancing innovation. Third, if local governments introduce policies to encourage and support SCF, companies can improve their efficiency by developing SCF. Fourth, of the various types of SCF businesses, the innovation model, supplier financing, and fund and service recipients contribute to greater efficiency improvement. A series of heterogeneity tests reveal that high factor-led companies, private companies, and those located in less marketized and western regions experience more significant effects when implementing SCF.
Our study makes the following contributions. First, we draw on the specialized vocabulary of different supply chain businesses and propose a text analysis method combining the “dictionary method” with the “business method” to effectively extract information on whether listed companies have engaged in SCF, along with the specific types and methods used. Second, we identify and validate three channels of SCF: financing optimization, relationship embedding, and cooperative R&D, which contribute to the enhancement of corporate efficiency. We provide an in-depth analysis of how SCF influences companies' production and operational efficiency. Additionally, by utilizing multiple databases such as CSMAR, Wind, and Qichacha.com, we empirically analyze joint investments and equity collaborations within a supply chain involving listed companies, suppliers, and customers. Our findings enrich theories on improving corporate efficiency. Third, we examine the effectiveness of local government SCF support policies by analyzing relevant policy documents. We empirically investigate the impact of these policies on local enterprises' adoption of SCF and the subsequent improvement in corporate efficiency.
Our study has important implications for enterprises in terms of seeking cooperation opportunities, improving innovation and R&D capabilities, and enhancing competitiveness. Enterprises should seize the opportunity to develop SCF and leverage Internet of Things technology, to enable real-time logistics information tracking. They can also utilize big data analysis for inventory optimization, increase the digital and integrated transformation of supply chain management, expand mutual investment and relationship embedding with upstream and downstream enterprises in the supply chain, and establish information system interconnection within the supply chain. This can then enhance their competitiveness in the global value chain.
Our study also provides empirical evidence that national and local governments should support the development of SCF. We find that companies located in regions with lower levels of marketization and less developed economies can achieve more significant efficiency improvements by developing SCF. Therefore, local governments in such regions should carefully consider national policies that support supply chain innovation and application. They should actively respond to these strategies, consider their local economic and social development realities, and coordinate efforts to implement supporting policies for local supply chain innovation. By constructing and optimizing local SCF service systems, they can create further high-quality development opportunities for local enterprises.

Corporate innovation plays a key role in a firm's growth and is the engine of national economic growth. Due to the high levels of uncertainty and R&D investment involved, a prerequisite for the success of corporate innovation is a stable and abundant financing source. Unlike in many Western countries, debt financing in China constitutes the largest proportion of total financing, and thus the support from creditors is critical to the success of corporate innovation. However, debt holders receive fixed incomes from the interest so they cannot benefit from a firm's risk-taking activities such as innovation. They will then suffer losses if these firms go bankrupt due to the failure of their innovation. They will then hold a negative attitude toward such activities. The judicial capacity of the court regarding bankruptcy generally has a profound impact on creditors' failure tolerance and corporate innovation activities. Long trial times and ignorance of creditors' legal rights can significantly affect bankruptcy costs. The literature on bankruptcy institutions and corporate innovation primarily focuses on the impact of legislation, and thus we advance the literature by examining the impact of law enforcement on corporate activities.
We investigate how judicial capacity affects the innovation activities of local firms by regarding the introduction of a specialist tribunal for liquidation and bankruptcy as a quasi-random experiment. We find that after the local courts establish such a tribunal, local firms significantly increase their R&D intensity from 14.00% to 15.95% compared with non-local firms. The findings are robust to various checks, such as a matched sample using propensity score matching and using the distance between the city and universities with doctoral degrees conferring places in first-level disciplines in law as an instrumental variable. The impact of the reform on corporate innovation is more pronounced for firms located in provinces with less relevant judicial specialization, firms more heavily supervised by creditors, and those whose creditors have a lower tolerance of failure. We further find that the reform significantly decreases the processing time of local listed firms' bankruptcy cases. It also enhances the debt financing capabilities and reduces the interest rates of local firms' corporate bond issuance. In addition, heterogeneity tests show that the impact is stronger for firms that are less likely to go bankrupt and those located in cities with more zombie firms. Finally, we find that innovation output, as measured by patent applications from local firms, also increases significantly after the reform.
The paper makes several contributions to the literature. First, we contribute to research on how institutions dealing with bankruptcy affect corporate innovation activities. Unlike other studies that analyze the impact of legislation on innovation activities, we examine the impact of bankruptcy law enforcement in the unique context of China's specialized court reform. Second, we contribute to the literature on the economic effects of courts and their organizational structures. The court plays an important role in determining the level of law enforcement. The economic outcome of judicial organizational reform such as the introduction of a specialized tribunal has drawn much attention from academia. Unlike other types of cases, the complexity of bankruptcy cases means that the courts' capacity to ensure judicial quality and efficiency is of great importance. We contribute to this strand of literature by providing new evidence from specialized bankruptcy courts. Finally, our study offers a novel approach to examining the relationship between judicial capacity regarding bankruptcy and corporate innovation in the form of a quasi-natural experimental setting, which can help to alleviate any endogeneity concerns.
Our study has several important policy implications. First, it demonstrates that specialized court reform can significantly enhance the efficiency and professionalism of law enforcement, and thus provides an important reference for other bankruptcy case trial reforms. Second, we reveal that a well-functioning institution that focuses on bankruptcy can help to achieve a good business environment and market operation. Such institutions are significant in promoting micro-enterprise innovation and supporting financial services in the real economy. Third, our findings provide useful implications for China's implementation of national strategies for law-based governance and innovation-driven development.

Financial innovation continually provides the impetus for financial development. Accelerating financial innovation is essential to advancing comprehensive financial reforms and can also be an effective catalyst for increasing resource allocation efficiency and propelling high-quality economic development. In the context of rapidly constructing a new development pattern and striving for high-quality growth in China, the question of how to balance the relationship between financial innovation and financial risk has become significant.
Exchange-traded funds (ETFs) are among the most popular and important financial innovations of recent years. However, although ETFs have proven to be valuable, they have had adverse effects on the stability of the financial market. For example, following the “flash crash” in the U.S. market on May 6, 2010, various publications such as the Kauffman Report attributed the cause of the stock price flash crash to the short selling mechanism of ETFs, and argued that ETFs exacerbate panic selling and trigger systemic risk. ETFs have become increasingly popular among investors in China. However, given the vast differences between China's A-share market and those of Western countries in terms of investor structure, trading systems, and corporate governance, whether financial innovations like ETFs may have unforeseen negative effects on underlying stocks and the financial market requires further examination.
Chinese listed companies play an essential role in maintaining the stability of the financial market through steady stock price development. However, stock price crashes are not uncommon. These crashes generally undermine shareholder rights and investor confidence, leading to a lack of stability in market operation. In a complex and interconnected financial system, the price plunge of a single stock can potentially trigger a domino effect damaging financial market stability. Against this backdrop of rapid ETF growth and frequent stock price crash risk, the question arises of whether the two phenomena are related. If ETFs exert a negative impact on the stock price crash risk of their constituent stocks, what are the underlying mechanisms？ These questions serve as crucial entry points for exploring the relationship between financial innovation and financial risk.
Thus, in this study we investigate non-financial companies listed on the A-share market between 2006 and 2019, with data sourced from the Wind and CSMAR databases. We examine whether and how the proportion of ETF holdings affects the stock price crash risks in listed companies, and thus explore the relationship between financial innovation and financial risk. We find that an increase in the ETF ownership ratio intensifies stock price crash risk. Channel analyses show that ETF ownership enhances stock liquidity, thereby attracting more short-term investors and enticing management to conceal negative company news. When accumulated negative news is collectively released, it can trigger a stock price crash. However, external factors such as the imperfect A-share pricing mechanism and analysts' optimistic bias are not the primary reasons for the increased risk of stock price crashes due to ETFs. We also find that the effect of ETFs on stock price crash risk is even more pronounced in companies with more severe agency conflicts, poorer corporate governance, and a higher degree of information asymmetry.
This study makes three main contributions. First, by focusing on the corporate governance of micro-level listed companies, we demonstrate that although financial innovation improves stock liquidity, it also fosters opportunistic tendencies in management, ultimately leading to stock price crashes. Our study not only extends the ETF and stock price crash risk literature but also extends the research perspectives by providing local empirical evidence concerning the relationship between financial innovation and financial risk. Second, we construct the instrumental variable based on the adjustment of CSI 300 and CSI 500 indexes, and we test the relationships between various types of ETF ownership ratios and stock price crash risk. These can help deal with potential endogeneity issues and enables us to accurately identify the causal effect of the ETF ownership ratio on stock price crash risk. Third, the study identifies poor corporate governance in the company itself as the underlying mechanism through which ETFs increase stock price crash risk. This indicates that improving corporate governance not only has positive implications for the sustainable development of a company but also has considerable value in terms of maintaining the stability of the financial market. Regulatory authorities can prevent factors from destabilizing the macro financial market by focusing on the governance of micro-level enterprises, thereby contributing to the high-quality development of the economy and the stability of the financial market.

Due to a lack of systematic commercial interest rate data, reasearches about the economic history of the Ming and Qing dynasties mainly draws conclusions based on the descriptions of interest rates in non-commercial private lending. The data problems lead some scholars to believe that higher interest rates hinder economic development and lead to “a great divergence” between China and the West, while others believe that although there is an interest rate difference between China and the West, Smithian growth suggests that non-market channels such as kinship relationships are still sufficient to support China's development. To solve the data problem, we establish a database of interest rate history since the 17th century, drawn from a combination of commercial documents including letters, account books, bank records, and more general material including contracts, judicial records, diaries, notes, and investigation reports.
To construct meaningful interest rate series from these various sources, we first identify the evolution of financial organizations from the middle and late Ming dynasty to the late Qing dynasty. We reveal that during this period, pawn shops, silver money shops, exchange shops, and an interbank lending market appeared one after another, and successively became the hubs of commercial financing in each stage. Although traditional financial institutions have lost out in their competition with modern financial institutions such as banks, this does not mean that previous developments should be ignored. Before the 20th century, the evolution of traditional financial organizations and the changes in their business and technology were not without breakthroughs, which provided the conditions for the development of modern finance. These activities were closely related to the large-scale, long-distance capital flows of the period, and the market at the time was close to the capital markets examined in the literature, or close to the “highest level” market defined by Fernand Braudel.
Based on this understanding of financial organizations in the Ming and Qing dynasties, we distinguish commercial interest rates from those of non-commercial private lending, and also distinguish the interest rates of ordinary commercial lending from prime commercial lending. Thus, our study reveals that the interest rate showed a general decline in terms of the private lending rate in the late Ming dynasty, particular for commercial lending, which also demonstrated obvious convergence. Although ordinary non-commercial lending interest rates changed little after the late Ming dynasty, the downward trend in commercial interest rates continued into the 19th century, and the lower part (or prime rates) of these rates fell to a greater degree. We also compare interest rates in the “highest level” markets in China and the West, as their business was similar. By the mid-19th century, China's prime rates had fallen to nearly 5% in its advanced regions, although they remained slightly higher than the bill discount rate in London during the same period but were lower or did not exceed similar interest rates for U.S. and Japanese banks.
Regional data also show that interest rates for both ordinary and prime lending tended toward integration in the pre/mid-19th century, while the coastal and hinterland “scissors gap” began in the late 19th century. However, the interest rate difference between traditional financial institutions in commercial ports in the late 19th and early 20th centuries was still smaller than that of banks, and close to the regional interest rate difference between U.S. banks when distance is considered. The primary mechanism for promoting the integration of interest rates between commercial ports is through the local interest rate markets formed by the centralized clearing operations of financial institutions. The standardized interest rate formed in these markets plays the role of a price signal, guiding the cross-regional flow of capital and improving the degree of integration of financial markets. The performance of traditional financial institutions is more controversial in terms of enlarging the scale of capital than in terms of their achievements in market organization, particularly compared with modern banks. However, we find no positive relationship between lending scale and interest rate in commercial lending, so the limited size of traditional financial institutions is more likely to be the result of the limited capital demand in the pre-industrial era.
In summary, our study demonstrates the evolution of financial organizations in China between the 17th and early 20th centuries, which led to the continuous decline of commercial interest rates and an improvement in interest rate integration. Unlike the typical understanding in the literature, we find that it is not personal arrangements such as kinship networks, but impersonal although informal institutions such as the interest rate market and the periodic clearing system that play a key role. This increases our understanding of Smithian growth and its institutional basis during the Ming and Qing dynasties. Moreover, the interest rate market and other institutions still played a positive role after the rise of banks, which reveals the continuity between the development of traditional and modern finance.