The Central Financial Work Conference of 2023 proposes that efforts should be made to promote high-level financial opening-up, ensure financial and economic national security, and accelerate the construction of a financial power. In recent years, cross-border capital flows have become more frequent, and there is an obvious global financial cycle. Simultaneously, the relationship between cross-border capital flows and credit fluctuations in various countries has become closer. Historical experiences indicate that credit booms often precede financial disturbances like banking crises. In fact, exchange rates are crucial in linking cross-border capital flows, domestic credit cycles, and banking crises. Classical international finance theories suggest that under free capital flows, a floating exchange rate regime can stabilize external shocks and ensure the independence of central bank monetary policies. Under the background of global financial cycles, scholars have engaged in hot discussions about whether floating exchange rate regimes act as stabilizers and how China should choose its exchange rate regime and pursue high-quality financial opening-up. However, they have not yet reached a consensus. Therefore, it is necessary to explore the relationship among cross-border capital flows, domestic credit cycles, and banking crises under different exchange rate regimes. It could not only enhance international financial theories and provide empirical guidance for the reform of the RMB exchange rate regime, but also could act as a key element in promoting the process of high-quality financial opening-up and ensuring no systemic risks arise.
This paper collects domestic credit and cross-border capital flow data from 28 emerging market economies, sourced from the International Monetary Fund and the Bank for International Settlements. The paper divides credit booms and busts, constructs a Probit regression model to study the empirical relationship between cross-border capital inflows and domestic credit booms or busts, and focuses on whether a floating exchange rate regime can act as a stabilizer. We find that non-direct investment debt inflows, especially cross-border bank loan inflows, exhibit a pro-cyclical relationship with domestic credit. Compared to fixed exchange rate regimes, the pro-cyclical relationship between cross-border bank loan inflows and domestic credit weakens in countries with floating exchange rate regimes, indicating that floating exchange rates play a stabilizing role. However, the pro-cyclical relationship between bond inflows and domestic credit strengthens under floating exchange rate regimes. Further analysis indicates that floating exchange rates can stabilize “good booms” that do not trigger banking crises but cannot suppress “bad booms” that end with banking crises. Thus, floating exchange rate regimes need to be coordinated with other policies, such as tight macroprudential policies, to effectively curb the occurrence of banking crises.
This paper makes the following contributions: First, unlike existing studies that consider how capital inflows affect credit growth or analyze how capital inflows affect credit cycles from the perspective of debt structures, this paper analyzes the relationship among cross-border capital inflows, domestic credit cycles, and banking crises within a unified framework. More importantly, this paper studies the relationship among these three elements from the perspective of exchange rate regimes, investigating whether floating exchange rate regimes can act as stabilizers. Second, existing research rarely explores the relationship between different types of capital inflows and domestic credit fluctuations according to debt types and borrowing sectors. Avdjiev et al. (2021) found that domestic credit cycles are related to the type of external debt and borrowing sectors but did not further explore whether credit booms triggered by different types and sectors have different impacts on banking crises, and also did not investigate the role of floating exchange rate regimes. This paper finds that the stabilizing role of floating exchange rate regimes depends on the type and borrowing sectors. Third, existing literature has not explored the role of exchange rate regimes in stabilizing different types of credit booms and in preventing crises. This paper finds that floating exchange rate regimes can only stabilize “good booms” but cannot stabilize “bad booms” that lead to crises. Cooperation with other policies (such as macroprudential policies) is needed to better play the stabilizing role, indicating that floating exchange rate regimes are not a “one-size-fits-all” solution.
Based on these conclusions, this paper has the following policy implications: First, emerging market economies should closely monitor and avoid large-scale cross-border bank loan flows. Second, in the process of promoting financial opening-up and maintaining financial stability, each department should effectively guard against exchange rate risks and choose reasonable external financing methods. When increasing domestic non-banking sector financing through the international bond market, the cost of managing exchange rate risks for the non-banking sector should be reduced through improving financial infrastructure. Third, emerging market economies need to strike a balance in the choice of exchange rate regimes while promoting financial opening-up and maintaining financial stability. Crawling peg regimes and managed floating regimes may be better choices. Fourth, exchange rate regimes themselves have limited effectiveness in preventing systemic financial risks. While maintaining a dual fluctuation of exchange rates, regulators should strengthen macroprudential supervision of the banking sector.

As one of the most important policies, the key for scientific evaluation of the effectiveness of monetary policy lies in identifying the shocks that monetary policies generate and how the macroeconomic and financial market react. However, when examining the regulatory effect of interest rates on inflation, empirical research has found a price puzzle, that is, contractionary monetary policy actually leads to inflation or price level increase. On the one hand, research is mainly based on a single interest rate indicator, ignoring the market expectation implied by changes in interest rates over different term structures. On the other hand, studying the economic impact of monetary policy can be disrupted by information effects. Therefore, identifying multiple shocks helps to provide a more comprehensive understanding of the impact of China's monetary policy.
This paper designs an identification scheme for monetary policy shocks based on the market expectations and the information effects. First, monetary policy interventions not only adjust current short-term interest rates, but also change market expectations for future policy through longer term interest rates. Thus, we can use interest rate term structure to identify immediacy shocks and expectation shocks to monetary policy. Second, based on the information effect, stock returns are introduced as a constraint to identify policy expectation shocks that are negatively correlated with stock returns which reflect expectations about future monetary policy operations, and economic expectation shocks that are positively correlated with stock returns which reflect expectations about future economic conditions.
Empirical research finds that multiple shocks of monetary policy have different effects on macroeconomic variables. The tightening immediacy shocks lead to a decrease in inflation levels, and there is no price puzzle anymore; The tightening policy shocks can lower market expectations for output, leading to a decrease in real output; Positive economic expectation shocks can lead to an increase in output expectation and inflation expectations, as well as an increase in real output and inflation levels, verifying the expectation channel of monetary policy.
At the same time, there is heterogeneity in the information effect of interest rates with different maturities. As the interest rate term lengthens, the relative importance of immediacy shocks weakens, with the highest relative importance for overnight lending rates being 73.39%, while the relative importance for one-year lending rates is only 3.04%. The relative importance of economic expectation shocks is gradually increasing, with the one-year interbank lending rate having a relative importance as high as 52.32%. The biggest impact of policy expectations shock is the 3-month interbank lending rate, which is as high as 79.02%. Therefore, the public can infer potential shocks through observable changes in interest rates, providing empirical evidence for the central bank to guide public expectations through policy tools such as open market operations and medium-term lending facilitation.
Finally, by comparing the multiple shocks of monetary policy presented in this paper with those of Chen et al. (2018), it is demonstrated from the effects of impulse response and variance decomposition that multiple monetary policy shocks can better explain macroeconomic fluctuations and comprehensively capture the impact of monetary policy shocks. Based on the above research conclusions, we obtain the following two research inspirations:
First, there are differences in the economic effects of monetary policy shocks with different attributes. Identifying multiple monetary policy shocks helps to explain the price puzzle, which is an important basis for scientifically evaluating the economic effects of monetary policy. It provides factual support for precise policy regulation in the future, and plays a key role in maintaining financial market stability and macroeconomic regulation through monetary policy.
Second, multiple shocks of monetary policy are potential factors driving changes in all term interest rates. As the interest rate term increases, the relative importance of immediacy shocks weakens, while the relative importance of economic expectation shocks gradually increases. The central bank can influence long-term or short-term interest rates through open market operations and medium-term lending tools, guiding the public to form reasonable expectations based on observed changes in market interest rates, thereby exerting the expectation management function of monetary policy and improving its effectiveness.

Although government debt provides strong financial support for expanding government investments and responding to external economic shocks, it will also elevate the macro leverage ratio and pose potential financial and overall economic risks. Therefore, countries around the world prioritize the management of government debt. Specifically, China has made significant decisions and arrangements focusing on strengthening local government debt management and preventing and mitigating associated risks. Exploring the internal mechanism of local government debt formation is central to fending off and defusing local government debt risk.
Historically, in the context of local government investment competition, local governments have leveraged their soft budget constraints to fuel a strong investment impulsion, but also lead to economic cycle fluctuations and impacting the stability of economic operation. Following the enactment of the Budget Law of the People's Republic of China in 1994, independent borrowing channels for local governments were restricted, effectively hardening their soft budget constraints and stabilizing local government investments. However, in response to the severe impact of the global financial crisis, the People's Bank of China and the former China Banking Regulation Commission issued the “Guiding Opinions on Further Strengthening Credit Structure Adjustment to Promote Stable and Rapid Economic Development” (No. 92 Document). This document relaxed credit regulations of local governments, allowing them to use local government financing vehicles (LGFVs) for off-budget borrowing, thereby rekindling local governments' investment impulse. Consequently, local governments could bypass institutional constraints, directly injecting their resources into LGFVs to improve their financial indicators or using their resources as guarantee to help these LGFVs finance, thereby rapidly expanding local government debt.
By employing a difference-in-differences (DID) strategy and taking the sum of local state-owned industrial enterprise assets and land assets as the proxy variable of local government-controlled leverage resources, this paper builds a local government debt database and exploits the policy shock from credit deregulation of local governments in No. 92 Document in 2009 to study the impact of credit deregulation on local government debt. The results show that local governments with more resources used as leverage experienced more significant increases in government debt after the credit deregulation. On average, for every 1% increase in local government's leverage resources, the credit deregulation led to a 0.38% increase in local government debt. Mechanism analysis shows that, following credit deregulation, local governments supported LGFVs by providing equity and government subsidies, enhancing their financing capacity, helping them meet financial market requirements for financing and ultimately achieve the purpose of debt financing. From a debt structure perspective, credit deregulation allowed local governments to raise long-term debt with less rollover pressure and engage in bond financing activities. In terms of the usage of debt funds, relying on the credit deregulation, local governments not only repaid more existing debt but also increased new investments. Heterogeneity analysis finds that the effect of credit deregulation is more significant for local governments with more intervention on firms and economic growth pressure than others. Further findings suggest that credit deregulation enhanced the investment and financing functions of LGFVs and promoted transportation infrastructure construction.
The contributions of this paper are as follows. First, this paper explores the internal mechanisms of local government debt expansion from a new perspective of credit deregulation. Existing research mainly focuses on fiscal and financial institutions, implicit government guarantees, and land finance, with few studies addressing the role of credit deregulation. This paper effectively supplements the literature on the causes of local government debt from this perspective. Second, existing literature has examined the impact of the four-trillion economic stimulus plan on the macroeconomy, local government behavior, corporate economic behavior, and credit allocation. This paper identifies an important but overlooked policy measure, No. 92 Document, in addition to the four-trillion economic stimulus plan, and examines its impact on local government debt, enriching the research in this field. Finally, this paper has important policy implication for local government debt risk management. The rapid expansion of local government debt is a significant source of systemic financial risk accumulation. However, the problem of local government debt has not yet been fundamentally governed. This paper, from the angle of credit deregulation, identifies a new budgetary soft constraint caused by off-budget credit deregulation. Therefore, managing local government debt requires attention to both on-budget and off-budget budgetary soft constraints.

The cyclical fluctuations of labor income share in China are more pronounced compared to those of output cycles in China or labor income share cycles in the United States. These fluctuations play a crucial role in determining China's labor income share and have significant implications for economic cycle fluctuations. However, current research predominantly focuses on the long-term trends of labor income share, particularly on its U-shaped characteristics, paying less attention to its cyclical fluctuations.
This paper distinguishes between the long-term trends and cyclical fluctuations of labor income share and focuses on studying the cyclical fluctuations of labor income share in China. It improves the analytical framework for studying labor income share by considering the characteristics of economic cycles, dividing total income into labor income, capital income, and monopoly profits, and establishing a theoretical model capable of characterizing the cyclical fluctuations of China's labor income share. This paper firstly utilizes the theoretical model to analyze the impact of various factors on profit share and the distribution of residual share between labor income and capital income, thereby proposing the core theoretical mechanism of exogenous shocks affecting the cyclical fluctuations of labor income share. Then, it calibrates and estimates the parameters using macroeconomic data from China. Employing methods such as variance decomposition, impulse response analysis, and historical decomposition, the paper identifies the main driving factors of cyclical fluctuations in China's labor income share.
The research findings are as follows: Firstly, price markup shocks, capital-biased technological progress shocks, and monetary policy shocks are the main factors determining the cyclical fluctuations of China's labor income share, explaining 52.84%, 18.29%, and 15.87% of the cyclical fluctuations, respectively. Furthermore, the impacts of these three shocks on the cyclical fluctuations of labor income share differ significantly from their impacts on the long-term trends of labor income share. Secondly, price markup shocks and monetary policy shocks lead to pro-cyclical fluctuations in labor income share, while capital-biased technological progress shocks lead to counter-cyclical fluctuations. The impact of these exogenous shocks on labor income share first depends on their impact on profit share, followed by the distribution of the residual share between labor income and capital income. Thirdly, during periods of pronounced cyclical fluctuations in China's labor income share, price markup shocks are the dominant factors determining its trends, with significant impacts also from capital-biased technological progress shocks and monetary policy shocks. These periods coincide closely with significant real-world events such as China's accession to the WTO, the US subprime mortgage crisis, the European debt crisis, and China's economy entering a new normal phase and implementing supply-side structural reforms.
The research of this paper shows that we must attach great importance to the cyclical fluctuations of labor income share, give full play to the role of monetary policy and other stabilizing policies, continuously optimize the market environment for fair competition, stabilize labor income share at a reasonable level, and take effective measures to actively cope with the adverse impact of the new generation of technological revolution on labor income share.
The main contribution of this paper is as follows: First, we found that the periodic fluctuation of China's labor income share is more intense than that of the periodic fluctuation of China's output or that of the United States' labor income share, which is an important factor determining China's labor income share. Therefore, we clearly distinguishes between the long-term trend of labor income share and cyclical fluctuations, and takes the periodic fluctuations of China's labor income share as the research object. Secondly, according to the characteristics of the business cycle, the analysis framework for the study of labor income share is improved, and the total income is divided into labor income, capital income and monopoly profit. By analyzing the influence of various factors on the profit share and the distribution of the surplus share between labor income and capital income, the core theoretical mechanism of external shocks affecting the cyclical fluctuation of labor income share is proposed.
Considering that price markup shocks play a decisive role in the cyclical fluctuation of China's labor income share both at the overall level and in various periods, it is necessary to further explain what factors drive the price markup shocks and thus determine the cyclical fluctuation of China's labor income share, which is a feasible research direction in the future. In addition, the reasons for the fluctuation of China's labor income share are not only related to macro-level factors, but also to middle-level factors such as industrial policies. Therefore, another feasible direction is to expand the model of this paper to multi-sector cases, so as to further analyze the impact of supply structure, demand structure and industrial policy on labor income share.

Achieving common prosperity is the essential requirement of socialism with Chinese characteristics. How to reduce income inequality without undermining the motivation of economic entities' effectiveness has become a significant issue of common concern in both academia and practice. This study,realizes that China has a vast scale of state-owned capital, which has deeply integrated with private capital through intricate equity structures and has significant impact on the operation and development of private enterprises. However, internal income disparity within private enterprises has been expanded. Therefore,this study holds substantial theoretical value and urgent practical necessity.
Theoretically, there are two opposing views on whether internal income disparity should be expanded. Tournament theory holds that internal income disparity objectively reflects the real value of high-level talents, suggesting that paying executives higher salaries can motivate employees to work harder. Therefore, expanding internal income disparity might improve the performance of enterprises. On the other hand, social equity theory emphasizes that internal income disparity arises from differences in the levels of employees' effort, skills, and contributions to company performance. Employees compare their input and output with those of executives to evaluate the fairness of their income. Unfair distribution results can harm their motivation. Thus,expanding internal income disparity might reduce enterprise performance.
By tracing the relevant literature, this study finds that the key reason for the divergence between the two theories is the failure of distinguishing different types of internal income disparity. This study further argues that internal income disparity comprises both the unreasonable internal income disparity caused by executives' rent-seeking and reasonable disparity formed to ensure incentive effects. The involvement of state-owned shareholders in private enterprises can influence internal income disparity through various mechanisms. Considering that the internal income disparity results from the joint movement of executive and employee salaries, this study decomposes the internal income disparity and explores the impact and mechanisms of state-owned shareholders' involvement from the perspectives of executive and employee salaries.
To test the above problems, this study takes the data of China's A-share private listed companies from 2007 to 2021 as sample. Among them, data on state-owned shareholders is sourced from the RESSET database and manually collated, while other data comes from the CSMAR database and statistical yearbooks.
The study finds that overall, the involvement of state-owned shareholders significantly reduces internal income disparity within private enterprises. Specifically, the involvement of state-owned shareholders reduce the unreasonable internal income disparity of private enterprises and increase their reasonable internal income disparity. Examination of the mechanisms from the aspects of executive and employee salaries reveals that state-owned shareholders' involvement has no significant impact on executive salaries. This is because state-owned shareholders not only reduce the excessive administration expenses, thereby inhibiting executive rent-seeking, but also enhance the incentive effect of executive salaries, reducing stickiness of executive salary. Moreover, state-owned shareholders' involvement promotes the increase of employee salary by improving the employment system of private enterprises, raising deserved salaries, and boosting employee motivation, thereby reducing salary stickiness. Heterogeneity tests show that the role of state-owned shareholders in reducing internal income disparity is more significant when companies have more excessive on-the-job consumption and redundant resources. Through these impacts, state-owned shareholders' involvement achieves the economic outcomes of reducing the administration expense rate and increasing total factor productivity.
Contributions of this study are reflected in three main areas: First, in terms of research perspective, it reveals the impact and mechanisms of state-owned shareholders' involvement on internal income disparity within private enterprises under China's mixed ownership reform. It also deepens the understanding of the influencing factors and reasons of internal income disparity. The study finds that state-owned shareholders can effectively reduce internal income disparity, mitigating the income disparity formed by executive rent-seeking while enhancing the incentive role of income disparity. Second, in terms of theoretical innovation, the study deepens the understanding of tournament theory and social equity theory. Previous research showed disputes on how to adjust internal income disparity. By distinguishing internal income disparity based on different formation reasons, this study finds that state-owned shareholders reduce the unreasonable internal income disparity and increase reasonable internal income disparity, promoting the coordinated development of both theories and providing a theoretical basis for the introduction of relevant policies regulating income distribution. Third, in terms of practical significance, the study enhances understanding of the functional positioning of state-owned shareholders, revealing that their involvement in private enterprises can achieve a unity of fairness and efficiency, thus holding significant value for promoting common prosperity and offering new policy insights for strengthening, optimizing and expanding state-owned capital.
This study explores the role of state-owned capital in the development of the private economy at the micro level. Future research can expand to the meso and macro levels, examining how state-owned capital guides industrial adjustments and realizes layout optimization.

The report of 20th National Congress of the Communist Party of China emphasized the importance of“accelerating the implementation of the innovation-driven development strategy and attaining high-level self-reliance in science and technology”. Innovation is the primary driving force for development and a key element for the progress of enterprises and countries. However, to implement innovation-driven development, it is necessary not only to enhance the overall level of innovation but also to address the structural challenges in innovation, one of which is the “innovation gap” among regions. There is a large gap in the number of patent applications and patent grants between the eastern and central-western regions in China. Additionally, the Gini coefficient of patent applications and patent grants among cities is relatively high. The inter-regional “innovation gap” hinders the improvement of the overall innovation level in several ways. On the one hand, cities with high levels of innovation tend to attract and retain more high-quality talents, leading to talent outflow from cities with low levels of innovation, exacerbating the “innovation gap” among regions. On the other hand, innovation often requires cross-institutional and cross-regional collaboration and synergy. When there is a significant gap in innovation, cities with low levels of innovation may not be able to establish good innovation interaction relationships with cities of high levels of innovation. Therefore, it is necessary to narrow the “innovation gap” among cities and promote the effective allocation of innovation resources.
Knowledge spillovers are beneficial for low-level innovation regions to learn and adapt advanced technologies from high-level innovation regions, thereby enhancing their own innovation capabilities and reducing the “innovation gap” among regions. However, knowledge spillovers exhibit a high degree of localization, leading to barriers in cross-regional knowledge diffusion. High-speed railway plays a crucial role in facilitating the movement of talents, capital, and goods among regions, thereby reducing information search costs and promoting face-to-face communication. It provides convenient conditions for overcoming barriers in cross-regional knowledge spillovers, thus helping to narrow the “innovation gap” among regions.
This study employs a quasi-natural experiment of high-speed railway connectivity among cities and the patent data from the China National Intellectual Property Administration. The study reveals the following findings. Firstly, after the high-speed railway connection, the number of mutual patent citations between the two cities significantly increases by 5.24%, indicating that high-speed railway promotes knowledge spillovers among cities. Parallel trend test, placebo test, and instrumental variable regression confirm the robustness of the results. Secondly, the promoting effect of high-speed railway is more pronounced among cities with shared dialects, more inter-provincial chambers of commerce, and a higher level of mutual trust. Additionally, the study finds that high-speed railway connectivity facilitates cross-city subsidiary investment, supplier selection, inventor mobility, patent transfers, and patent collaborations. Thirdly, the high-speed railway connection between the two cities narrows the “innovation gap” among cities and significantly enhances the overall innovation capabilities of both cities. Finally, high-speed railway construction improves the innovation level of non-central cities and promotes inventor mobility and patent transfers from central cities to non-central cities, demonstrating a “diffusion effect”. Moreover, knowledge spillovers are bidirectional, as non-central cities also generate knowledge spillovers to central cities, thereby facilitating the coordinated development of innovation among cities.
This study has several contributions. Firstly, existing research mainly focuses on the single-point effects and locality effects of high-speed railway opening in individual cities, with limited exploration on the impact of high-speed railway on the point-to-point relationships among cities. Building upon existing research, this study investigates the influence of high-speed railway connectivity on knowledge spillovers by constructing panel data for city pairs. It further focuses on the interaction and coordination among cities at the innovation level, providing a networked and global perspective. Secondly, this study finds that the innovation radiation effect of central cities, after being connected by high-speed railway, contributes to improving the innovation level of non-central cities. Simultaneously, it promotes inventor mobility and patent transfers from central cities to non-central cities, demonstrating a “diffusion effect”. This provides certain insights into how transportation infrastructure development affects the spatial distribution of innovation resources. Thirdly, this study offers a new perspective on understanding the coordinated development of regional innovation through two-way knowledge spillovers. The knowledge spillovers brought about by high-speed railway are bidirectional, as high-level innovation cities also cite patents from low-level innovation cities. Two-way knowledge spillovers help to expand the common knowledge stock, narrow the regional “innovation gap”, and promote regional coordinated development.
This study also provides some policy implications for achieving coordinated regional innovation development. Firstly, it is important to utilize the technological comparative advantages of low-innovation level regions, achieve complementary regional innovation advantages, and promote two-way knowledge spillovers among cities. Secondly, policy support should be provided to enhance the “diffusion effect” of high-speed railway on innovation. This can be achieved by facilitating the flow of innovation resources among regions, thereby improving regional collaborative innovation capacity and overall innovation level. Thirdly, it is crucial to improve the spatial planning of high-speed rail, with a focus on the layout of high-speed railway lines in the central-western regions of China. Strengthening innovation cooperation and economic interactions between the eastern region and the central-western regions can stimulate economic development in the central-western regions.

While Fintech allows investors to enjoy more convenient and cheaper financial services, does it help investors achieve higher returns？ This paper uses a simple model to show that, in the case of investors' misjudgment, the low cost and convenience of Fintech channels will prompt them to trade more frequently, make more mistakes, and thus lead to poorer investment performance. This paper provides new empirical evidence for the impact of Fintech on investors and highlights the importance of investor education.
To be specific, this paper provides a theoretical model to illustrate that while Fintech channels reduce transaction costs, they do not necessarily enhance investment returns. In this model, investors with irrational expectations misjudge the market trends, and the reduction in transaction costs leads to their overly frequent trading. These error transactions ultimately result in poorer investment performance. Conversely, higher transaction fees set a higher threshold for trading decisions, thereby mitigating excessive trading. Even though transaction fees themselves reduce returns, they can improve the investment performance of investors with irrational expectations by reducing error transactions.
To test the model's predictions, this paper utilizes a unique micro-level dataset. This dataset originates from a domestic public fund management company and encompasses transaction records of individual clients from 2018 to 2020. This paper categorizes these transactions into two distinct channels according to the types of fund trading institution: Fintech channels and traditional channels. To better address endogeneity problem, this paper further standardizes a transaction data set of individual investors of public fund who hold positions in both traditional channels and Fintech channels.
Empirical analysis confirms the theoretical predictions, revealing a complex relationship between the utilization of Fintech and investment performance. This paper finds that while Fintech channels positively impact investment returns by reducing transaction costs (increasing returns by approximately 0.6%), they also contribute to a surge in irrational trading behaviors. This escalation of irrational trading leads to an approximate loss of 2.4% in returns, ultimately resulting in worse investment performance.
Further analysis reveals an interesting dynamic concerning the degree of investor irrationality. Among investors with different degrees of irrationality, there are significant differences in the impact of channels on returns. For more rational investors, the difference in returns between the two channels is nearly zero, neither statistically nor economically significant. As the degree of irrationality increases, the difference in returns between the two channels gradually widens. For the most irrational investors, the difference in returns between the two channels reaches 0.9% (single interest annualized 10.8%), and is significant at the 1% level. The findings of this paper generally exist in different types of investor groups, including groups with different wealth levels, genders and ages.
This paper provides fresh empirical evidence regarding the impact of Fintech on investors. While the development of Fintech channels has undoubtedly facilitated more convenient and cost-effective investment channels, the seemingly favorable development of Fintech does not help many individual investors improve their investment returns. Additionally, this paper underscores the importance of investor education to reduce irrational behaviors in investment decision-making.
Given these findings, in the case of bounded rationality of investors, blindly pursuing the low-cost and convenience of trading, and increasing trading opportunities may lead investors to make more irrational behaviors which is not conducive to the improvement of social welfare and investor utility. On the contrary, moderate friction can help financial markets function better.

In 2017, China established the green finance reform and innovation pilot zones in eight prefecture-level cities in Zhejiang, Jiangxi, Guangdong, Guizhou and Xinjiang provinces. Prior studies have explored economic consequences of the policy on the green finance reform and innovation pilot zones (the pilot policy; hereinafter similarly) in the facets of urban ozone pollution, corporate green innovation, corporate production efficiency and pollution emissions. However, the effects of the pilot policies on corporate environmental misconducts have been ignored. Against this unique setting of the green finance reform and innovation pilot zones, this study examines whether the pilot policy affects corporate environmental misconducts and further investigates differences in this effect between polluting and non-polluting industries.
The pilot policy can mitigate environmental misconducts by the conduits of green transformation, abnormal financing constraints and financial institutions' external monitoring. First, the pilot policy encourages and guides the inflow of various resources into technology upgrading projects and green industries, motivates firms to engage in green innovation actively, and promotes transformation and upgrade. Second, the pilot policy increases excess financing constraints induced by pollution, raises the costs of environmental pollution for firms, and inevitably drives them to pay attention to environmental performance. Lastly, the pilot policy strengthens the external supervision of financial institutions on corporate environmental performance by putting forward more supervision and information disclosure requirements for financial institutions in environmental protection, and then inhibits their environmental violations. Based on the above discussions, this study predicts a mitigating effect of the pilot policy on environmental misconducts of firms in the pilot zones.
Employing a sample of all A-share listed firms over 2014-2019 and using a DID (difference-in-difference) design based on a quasi-natural experiment about the green finance reform and innovation pilot zones, this study finds that, for listed firms in pilot zones, the likelihood of environmental misconduct is significantly lower after the implementation of pilot policies than before. This finding suggests that pilot policies curb environmental wrongdoings. Moreover, the mitigating effect of the pilot policy on corporate environmental misconducts is more pronounced for firms in polluting industries than firms in non-polluting industries. Above findings are robust to the sensitivity tests using the degree of corporate environmental irregularity, controlling for sample balance by the propensity score matching approach and addressing omitted variables by the firm-level fixed effect model. The channel tests show that the pilot policy affects corporate environmental misconducts by green transformation, excess financing constraints and environmental monitoring from financial institutions. Subsample tests reveal that the mitigating effect of the pilot policy on environmental misconducts is more prominent for firms with small scale (with low media coverage, and in heavily air pollution areas).
This study has two contributions listed below. First, this study examines the impact of the pilot policy on environmental misconducts from the perspective of incentive and monitoring, extends economic consequences of the pilot policy at the firm level, and analyses influential channels from the perspectives of green transformation, excess financing constraints and environmental monitoring from financial institutions. As such, this study provides important references for exploring the application and implement of the pilot policy. Second, the findings that the effect of the pilot policy on environmental misconducts is more prominent for firms in polluting industries (with small scale, with low media coverage, in heavily air pollution areas), provides crucial references for how the heterogeneity of firms' external environment moderate the impact of the pilot policy on environmental misconducts.
This study has several policy implications as follow: First, regulators should improve the implementation rules on green financial systems, summarize experiences on the pilot policy, and nationally promote green finance policy in proper time. Second, administrative agencies must enhance the monitoring of financial institutions in environmental governance and draw lessons from the implementation of pilot policies Lastly, policy designers need to consider how to integrate market means and tools into policy design, and eventually improve the efficiency of social governance by taking the critical role of market in resource allocation.
This study has the following three limitations. First, this study views the pilot policy as homogeneous, thus, future research can further examine the impacts of the heterogeneity in the pilot policy on environmental governance. Second, this study constructs a quasi-natural experiment based on the pilot zones, and future research needs to conduct further analyses after the green financial policy is implemented nationally. Third, due to data limitation, this study does not consider the differences in pilot policy enforcement, and it can be addressed in the future when the relevant data is more complete.

Expanding high-level opening up through policy design is a major issue in China's open economic governance. As an important tool for attracting and utilizing foreign direct investment (FDI), FDI policy is an important means for the government to play the “visible hand” to achieve a high level of opening up. However, Some local governments have blindly imitated other local governments' FDI encouraging policies, ignoring the actual situation of the local economies, which has led to a series of economic distortions, such as local protection, market segmentation, and repeated construction. Why do local governments have such a strong incentive to formulate FDI encouraging policies？ And what kind of competition pattern and impact consequences does local governments' FDI encouraging policies present in the course of more than 40 years of FDI attraction？
In view of this, this paper, based on a long-term and dynamic perspective, examines the peer effect of Chinese prefecture-level municipal governments' FDI encouraging policies by constructing a database of China's FDI policies from 1978 to 2022, and systematically analyses the evolution pattern of local government's FDI policies in China, particularly the influencing factors and equilibrium outcomes of the competition of FDI encouraging policies. Specifically, this paper first constructs a game model covering local governments with domestic and foreign-funded enterprises. Theoretically, it analyses the peer effect of local governments in the existence of FDI encouraging policy; and, when the cost of FDI encouraging policy is too high, local governments will eventually withdraw from the FDI encouraging policy competition in the long term. Secondly, based on the dataset of China's FDI policies from 1978 to 2022 constructed in this paper, the empirical study finds that: (1) China's prefectural-level municipal governments introduce FDI encouraging policies not entirely based on their own conditions, but imitate other regions, and there exists a significant peer effect in prefectural-level municipal governments' FDI encouraging policies. (2) The “peer” targeted by the competition of FDI encouraging policies of prefecture-level municipal governments includes not only prefecture-level municipalities in the same province with “yardstick competition”, but also prefecture-level municipalities with similar geographic location, similar level of economic development and similar industrial structure. (3) Although there is blind imitation in the FDI encouraging policies of some local governments, the FDI encouraging policies of regions with rich experience in opening up and high degree of marketisation, as well as those regions with highly educated local leaders with rich working experience, are relatively independent. (4) Inter-regional competition in FDI incentives exists in both policy quantity and policy quality, and the central and western regions will eventually choose to withdraw from the competition in FDI incentives, while the eastern regions will strengthen the competition in FDI incentives.
Compared with the existing literature, the contribution of this paper lies in the following: Firstly, this paper is the first to study the “peer competition effect” of local governments in China in terms of the quantity and quality of FDI incentives from the perspectives of theoretical analyses and empirical tests. By answering the questions of why the peer effect occurs in the FDI incentives of local governments, who they are imitating in their policy decisions, and how policy peer competition affects local governments' policy learning and shapes their FDI policies, this study reveals the evolutionary law of China's FDI policies, the dynamics and equilibrium results of policy competition, which is conducive to clarifying the directions and paths of actively and effectively utilizing FDI, and also provides useful policy insights for optimizing the FDI policies. In addition, this study reveals that the “self-interested” rational response of local governments leads to collective irrational results, which provides an important reference for understanding the behavior of local governments and constructing a business environment of fair competition between domestic and foreign capital. Secondly, from the theoretical level, the current research on the peer effect mostly focuses on corporate behavior and individual or family behavior. Based on the perspective of local government policy interaction, this paper extends the study of peer effect to international direct investment research. By analyzing the “peer effect” of Chinese local governments' FDI encouraging policies, this paper reveals the impact of local government policy competition on the evolution of FDI policies, which not only enriches the application scope of the peer effect theory, but also supplements the literature on the driving factors of the formulation and change of FDI policies. Third, in terms of research samples, existing studies on FDI policy often cover only a single type of FDI policy, involve a short period of time, and fail to provide a complete picture of the structural characteristics of FDI policy, its evolutionary pattern, and its long-term policy effects. This paper compiles information on China's FDI policy from 1978 to 2022 and constructs a FDI policy database covering the central level, provincial level and prefecture level. this is one of the most comprehensive databases for studying China's FDI policies with a complete time span.

Innovation is a core element in the development of new quality productivity. As a key institutional arrangement, the patent system encourages and protects innovation by granting patentees monopoly rights over specific technical solutions for a limited time period. In the context of China, most studies have reached the consensus that stronger patent protection significantly boosts innovation. However, it is important to note that patent protection may also bring about various drawbacks of monopoly, including lower consumer welfare and discourage subsequent innovation. Theoretical studies suggest that patent protection either facilitates or hinders subsequent innovation, depending on industrial structure and technological characteristics. Empirical studies indicate that patent protection can impede subsequent innovation in the form of patent thickets, particularly in highly cumulative and patent-fragmented industries such as information and communications technology (ICT). This highlights the profound impact of patent thickets on the relationship between patent protection and innovation.
In the context of the continuous transformation and upgrading of China's economy and the rapid increase of intellectual property protection, is technological innovation being affected by the patent thicket？ Accordingly, should patent protection levels vary based on industrial characteristics and innovation contexts？ And how should we mitigate the monopolistic barriers arising from enhanced patent protection？ There are still many problems worthy of attention. To this end, this paper focuses on the case of patent thickets to explore the monopoly costs associated with patent protection and their effects on subsequent innovation and industry development.
First, based on Chinese patent data, this study draws on the framework established by Graevenitz et al. (2011) to quantify the density of patent thicket across various technological domains in China from 1985 to 2014. The analysis reveals several typical stylized facts: First, from the time dimension, patent thickets in China have witnessed a significant surge around the year 2000. Second, from the perspective of technical field level, the phenomenon of patent thickets has emerged prominently in fields involving complex technologies. Third, from the perspective of enterprise level, the formation process of patent thickets is dominated by a small number of enterprises, while most companies have encountered patent thickets as external uncertainties.
Moreover, this study employs a causal identification strategy based on shift-share instrumental variables to empirically study the effects of monopoly loss costs stemming from patent protection on subsequent innovation and industry development. And our findings include the following: First, the density of patent thickets significantly amplifies the proliferation of utility patents while diminishing the number of invention patents with higher levels of innovative content; Second, patent thickets significantly decrease the quality of innovation; Third, patent thickets lead to a significant increase in the volume of patent transactions, but it will weaken the “quality premium” of patents that are licensed and transferred; Fourth, these effects are particularly pronounced among firms confronted with more important triples, positioned downstream in citation chains, belonging to high technology industries, and located in regions with higher level of intellectual property protection; Fifth, the strategic patent behavior induced by patent thickets has a significant negative impact on both firms' future market value and industry competition.
This study makes possible contributions to the following aspects: First of all, most existing research on monopoly problem caused by patent protection focuses on developed countries. The studies on China is mainly based on theoretical discussion, lacking empirical analysis supported by data. This paper fills that gap by providing macro-evidence from China, examining the monopoly costs of patent protection and its impact on subsequent innovation and economic development, thereby providing empirical evidence from developing countries for existing theoretical research and broadening the understanding of the relationship between patent protection and innovation in economic theories. Besides, by measuring patent thickets across various technological fields in China, summarizing developing law of patent thicket, and empirically exploring the effects of patent thickets on innovation and competition, this paper provides empirical support from China for the global understanding of patent thickets and refines the theoretical framework by providing a dual perspective of both innovation and competition.
Our study also has several important policy implications. First, raising the criteria for granting utility patents is essential to minimize monopolistic gains from strategic innovations. Meanwhile, the patent examination process should be strictly enforced, with higher standards to prevent the abuse of patents that lack sufficient novelty and creativity. Second, build technology trading platforms, patent pools, and promote patent open licenses to reduce the increased transaction costs due to patent hijacking and license fee superposition caused by patent thickets dilemma, thus encouraging enterprises to prioritize genuine R&D. Third, adjusting intellectual property protection levels based on industry development and technological characteristics to balance between fostering innovation incentives and mitigating monopoly costs, promoting industry growth and scientific and technological innovation.

The establishment of STAR (the Science and Technology Innovation Board) market is a major institutional innovation in China's capital market, which is not only an important measure to enhance the function of financial services for the real economy, but also a testing ground for promoting market-oriented reforms such as IPO registration system and lowering the entry threshold of direct financing system. As of June 2023, STAR market has 528 listed companies, realizing a cumulative IPO financing amount of RMB847.677 billion, accounting for more than 40% of the total financing of domestic A-share market during the same period, with a total market capitalization of RMB6.72 trillion in aggregate, which has injected a strong kinetic energy into the high-quality development of China's economy. whether and how the STAR market registration system improves the IPO pricing efficiency are key questions that needs to be answered.
This paper proposes that the STAR market registration system may improve IPO pricing efficiency through two mechanisms: (1) Market-oriented pricing: Because the approval system has the pricing control of the “23 times PE ratio” ceiling, the IPO pricing of those high-value and high-growth enterprises will be much lower than their true value, which will create a serious underpricing problem. The STAR market registration system breaks through the invisible pricing control, and adopts the market-oriented inquiry pricing method, so that when the enterprises with higher potential valuation level are listed on the STAR market, the “regulatory price underpricing” will be eliminated. (2) Alleviating information asymmetry: Under the approval system, there is a serious information asymmetry between IPO enterprises and investors, IPO information is basically limited to the issuer, the sponsor and the CSRC (China Securities Regulatory Commission), investors are difficult to form a full understanding of the true value of the enterprise before listing. To make a sufficient risk compensation for investors, the IPO must be underpriced, which reduce the IPO pricing efficiency. While the registration system greatly optimizes the information communication channels between the issuing enterprises and potential investors, and helps investors to judge the real situation of the issuing enterprises through the public disclosure of the audit inquiry letters and inquiry reply letters during the listing process, which alleviates the information asymmetry problem of IPOs and improves the pricing efficiency.
we construct a cohort DID model with continuous treatment intensity variables to provide causal evidence, in which the first dimension of difference is whether a firm is listed on STAR market, and the second dimension of difference is the valuation and degree of information asymmetry on the “industry-time” level, which depicts the degree of potential influence by the STAR market registration system. firstly, we selected the average price-earnings ratio weighted by the total market capitalization of the industry to which the IPO enterprise belongs two years before its listing and the price-earnings ratio of the paired company to measure the potential valuation of the IPO enterprise. Secondly, considering that R&D and innovation activities are naturally characterized by high risk, uncertain payback cycle and huge information gap between internal and external information of the enterprise in technological details, we selected the weighted average R&D investment intensity of the industry to which the IPO firm belonged in the two years prior to its IPO to measure information asymmetry. The core of the DID model is the interaction term formed by these two variables and the dummy variable that distinguishes whether a firm is listed on STAR market.
The main findings of this paper are as follows: firms with higher potential valuation and more serious information asymmetry on the industry level have significantly lower underpricing when listing on STAR market compared with those listed on other markets, revealing that the STAR market registration system improves IPO pricing efficiency precisely through the two mechanisms of market-oriented pricing and alleviating information asymmetry. Additional tests revealed that (1) companies with higher valuations on the industry level, have larger financing scales and R&D investment after listing on the STAR market compared with other markets; (2) The more serious the information asymmetry on the industry level, the more information disclosed in the prospectus and the higher its quality when listed on the STAR market; (3) The post-listing performance of STAR shares are significantly better.
The core contribution of this paper is the pioneering use of a cohort DID model which includes continuous treatment intensity variables to provide causal evidence for whether and how the registration reform improves the efficiency of IPO pricing. The paper shed light on the fact that adopting a market-oriented pricing mechanism is the most direct way to reduce IPO underpricing. Additionally, broadening the information communication channels and improving the quality of information disclosure between issuing firms and potential investors are also feasible ways to reduce IPO underpricing.