As global financial integration deepens, the financial conditions of various countries exhibit significant cross-border co-movements, known as the “global financial cycle”. As a critical transmission channel of the global financial cycle, cross-border capital flows display a marked procyclicality. If a recipient country's capital flows are highly procyclical with respect to the global financial cycle, they can form a positive feedback loop with the domestic financial system, becoming part of the financial accelerator and increasing the vulnerability of the financial system. Given that the intermediate targets of macroprudential policies are to mitigate the procyclical feedback of domestic financial cycle variables such as asset prices, credit, and leverage, and that these variables are also key components of the positive feedback loop in the transmission of the global financial cycle, theoretically, macroprudential policies should be able to weaken the procyclical feedback of capital flows to the global financial cycle.
This paper constructs an open economy dynamic stochastic general equilibrium (DSGE) model and combines it with empirical research to qualitatively and quantitatively analyze the main mechanisms through which macroprudential policies smooth global financial cycle shocks. It compares the mechanisms of macroprudential policies on different types of cross-border capital inflows and analyzes the heterogeneous effects of these policies. The study finds that macroprudential policies can reduce the procyclical impact of the global financial cycle on capital inflows and that the buffering effect on the procyclicality of debt-type capital inflows is superior to that on equity-type capital inflows. The analysis of policy effectiveness heterogeneity indicates that economies with higher external risk exposure (higher financial development, greater capital account openness, higher financial integration, greater pegging to the dollar, and more foreign currency-denominated external debt), lower capacity to withstand external risks (weaker global financial safety net, lower foreign exchange reserves), more pronounced internal vulnerabilities (higher macro leverage levels in the non-financial corporate sector, public sector, and household sector), and fixed exchange rate regimes benefit more from the buffering effects of macroprudential policies against global financial cycle shocks.
Furthermore, considering that the global financial cycle is often accompanied by the debate on whether the “trilemma” has transformed into a “dilemma”, this paper further investigates the dynamic response of cross-border capital flows distribution to global financial cycle shocks using the Capital Flows-at-Risk (CFaR) framework. It particularly focuses on the dynamic effects of the floating exchange rate regime in isolating external shocks under the tail risks of capital flows. The paper finds that when capital inflows are at a low level, the floating exchange rate regime can act as a buffer and completely isolate external shocks, which is consistent with the “trilemma”. However, when capital inflows are at median and high levels, although the floating exchange rate regime experiences the least shocks compared to intermediate and fixed exchange rate regimes, it cannot completely isolate external shocks, which aligns with the “dilemma” to some extent.
The contributions of this paper are threefold. First, the existing literature rarely examines the role of macroprudential policies in preventing the procyclical risks of cross-border capital flows induced by the global financial cycle, and this paper provides a detailed and in-depth heterogeneous analysis of the effectiveness of macroprudential policies. Given that policy implementation needs to be tailored to the national context, there are no universal policy tools. Therefore, the heterogeneous analysis of policy effectiveness in this paper can provide policy insights for countries to respond to global financial cycle shocks in a context-specific manner.
Second, while existing research extensively discusses how macroprudential policies affect cross-border capital flows and economic fluctuations in open economy macro models, theoretical literature primarily focuses on debt-type capital inflows. This paper's theoretical model, however, encompasses both debt-type and equity-type capital inflows within a unified framework. Additionally, when characterizing the decision-making behavior of the financial intermediary sector, existing studies either focus on financial accelerator frictions arising from information asymmetry in lending activities between financial institutions and enterprises or emphasize financial frictions stemming from balance sheet constraints within financial institutions. This paper's theoretical model encompasses both types of financial frictions, providing a reference framework for evaluating the effects of macroprudential policies in an open economy.
Third, from a novel perspective of capital flow distribution, this paper offers a unified and intrinsically consistent explanation for the “trilemma” and “dilemma” debate. It complements the literature related to the “trilemma” and “dilemma” debate by showing that the insulating effect of the floating exchange rate regime varies with the distribution of capital flows. Moreover, this paper explores how the buffering effects of macroprudential policies vary with exchange rate regimes and the distribution of cross-border capital flows within the CFaR framework, a topic that has been scarcely addressed in existing literature.

Since the 18th National Congress of the Communist Party of China (CPC), significant progress has been made in deepening financial supply-side structural reforms and institutional financial openness. However, the Western world has intensified frictions in global economic and financial activities by imposing unreasonable tariffs, implementing baseless sanctions, and controlling financial institutions' actions. This has led to a deterioration of the global economic and financial situation, presenting new challenges to China's economic and financial openness. Against this background, on May 14,2020, the Politburo Standing Committee of the CPC Central Committee proposed “to build a new development pattern where domestic and international dual circulations promote each other”, and the 20th National Congress of the CPC emphasized “advancing high-level opening-up”. These developments pose higher demands on current macroeconomic policies, which need to better balance the relationship between economic openness, financial openness, and economic and financial risks.
The two-pillar policy, as one of the most important tools in macroeconomic control, plays a crucial role in balancing economic openness, financial openness, and economic and financial risks. Therefore, it is necessary to systematically study the regulatory effects of economic openness, financial openness, and two-pillar policies. While the effectiveness of two-pillar policies has been validated theoretically and supported empirically in some literature, existing studies have not fully discussed the impact of economic and financial openness on the regulatory effects of two-pillar policies, especially from an empirical standpoint. In light of this, this paper conducts an empirical analysis based on panel data from 95 economies from 1990 to 2020, examining the impact of economic and financial openness on the regulatory effects of two-pillar policies and discussing the coordination issues among economic openness, financial openness, and two-pillar policies.
The analysis shows that, on the one hand, from the perspective of primary effects, two-pillar policies do play a countercyclical regulatory role in stabilizing output, prices, credit, and asset prices, thereby promoting the joint stability of the economic and financial systems. On the other hand, from the perspective of moderating effects, as the levels of economic and financial openness increase, the regulatory effects of two-pillar policies tend to decline under various conditions. Further analysis indicates that at moderate levels of openness, two-pillar policies can achieve joint economic and financial stability through appropriate adjustments in policy intensity; however, at higher levels of openness, macroprudential policies face stronger negative moderating effects, suggesting that with increasing economic and financial openness, macroprudential policies may require relatively greater implementation intensity to achieve financial stability.
The policy implications of the conclusions of this paper are as follows. Firstly, there is a need to focus on the coordination among economic openness, financial openness, and two-pillar policies. The goal of coordination is economic stability, providing a solid foundation for integrating these elements. Secondly, financial openness should aim for high-level rather than large-scale openness. Policy authorities should always ensure that financial openness is predicated on a stable domestic macro environment and aimed at high-quality development of the domestic economy. This not only involves setting thresholds and pacing for foreign capital entry into China and identifying foreign institutions willing to participate long-term in China's economic and financial development but also involves creating more durable institutional openness to attract proactive foreign institutions. Finally, by further refining the two-pillar framework, the regulatory effectiveness of two-pillar policies can be enhanced. Specifically, enhancing the primary effects and weakening the moderating effects of these policies can expand the coordination space between economic openness, financial openness, and two-pillar policies. As openness increases, authorities should consider establishing corresponding risk monitoring systems and actively expanding the two-pillar policy toolkit to develop targeted policy tools based on potential risk transmission mechanisms, thereby effectively identifying and blocking key nodes of risk transmission and enhancing the overall regulatory effect of policies.

In order to accelerate the construction of a strong financial country and promote high-quality financial development, it is increasingly important to build a scientific and prudent monetary policy regulation system. In recent years, with the increasing demand for market expectation management and the maintenance of financial market stability, China has paid more and more attention to the monetary policy tools represented by central bank communication to manage market expectations. Therefore, it is of great significance to study the impact of central bank communication on asset prices in financial markets.
Though there is abundant research on the impact of central bank communication on the financial market, relatively few studies are based on the perspective of unexpected monetary policy information. According to the rational expectations hypothesis, only unanticipated monetary policy information can drive changes in asset prices in financial markets. Therefore, measuring unanticipated monetary policy information in central bank communication has become a key issue.
In fact, the information contained in central bank communication is particularly complex, showing multidimensional, multi-level, multi-structure and other characteristics. The traditional method of measuring unanticipated monetary policy information is to select a proxy indicator of monetary policy, and then to measure unanticipated monetary policy information, which is called quantifiable unanticipated monetary policy information (referred to as “quantifiable information”). However, the traditional method will inevitably be affected by factors such as subjectivity, representativeness, finiteness and model limitations of proxy indicators, resulting in the unexpected monetary policy information in central bank communication being only partially measured. In this paper, the unquantified part of the unanticipated monetary policy information is called potential unanticipated monetary policy information (referred to as “potential information”).
In addition, to investigate the impact of monetary policy information on asset price changes, it is also necessary to pay attention to the endogeneity of monetary policy and the financial market, which have a two-way influence. The study of high-frequency financial events can effectively avoid endogeneity and simultaneity problems. This paper manually collects communication events of the People's Bank of China. It then uses daily financial market data and the high-frequency event research method to analyze the impact of unexpected monetary policy information in the communication of the People's Bank of China on asset prices.
The main work and features of this paper are as follows: firstly, for the first time, dividing the unanticipated monetary policy information of the central bank communication into quantifiable information and potential information, using Treasury bond yield, shibor or M2 as proxy variables of monetary policy, and calculate quantifiable information based on Treasury bond futures, fixed float bonds and media survey data. Then, a potential factor is introduced into the state space model to identify the potential information, and Kalman filter method is used to achieve parameter estimation. Secondly, based on China's stock market, this paper examines the impact of quantifiable information and potential information in central bank communication on stock returns. In order to explain the difference between the latent factor model and the traditional event method, this paper compares the regression results of the two methods. Thirdly, this paper discusses the heterogeneous impacts of different types and different policy directions. On the one hand, the sample is divided into reports and meeting minutes for comparative study. On the other hand, the samples are divided into loose and tight information for comparative study. Finally, to verify the robustness of the event study method with potential factors and relevant conclusions, this paper examines the impact of central bank communication on the bond market, replaces the variable of quantifiable information, divides the different stages of the economic cycle and the verbal communication of the central bank.
The data used in this paper are mainly the return of the Shanghai Stock Composite Index and Shenzhen Stock Exchange component index, the forward yield of Treasury bond futures, the 3-month interest rate of Shanghai interbank offered rate, the 1-year maturity yield of policy financial bonds, the floating interest rate of policy financial bonds, M2 and the consistent forecast data of M2. The sample period is from January 2007 to December 2022, and the data comes from the Wind, the People's Bank of China and Baidu search.
The main research conclusions are as follows. First, quantifiable information measured by a single proxy indicator will underestimate the impact of unexpected monetary policy information in central bank communication on financial markets. Secondly, after introducing potential factors to measure potential unanticipated monetary policy information, more than 96% of stock price changes in the event window can be explained by unanticipated monetary policy information. Third, in terms of communication types, whether it is meeting minutes or reports, the expected management of central bank communication has a significant impact on the stock markets, but the impact of reports is greater. In terms of policy direction, central bank communication has an asymmetric impact on the stock market. Easing unanticipated monetary policy information has a significant positive impact on stock prices, while tightening unanticipated monetary policy information has a significant negative impact on stock prices, and investors are more sensitive to tightening information.
To sum up, in order to improve the modernization of the central bank's monetary policy regulation and strengthen expectation management, the central bank should build an unexpected monetary policy information index based on multi-dimensional monetary policy anchor indicators. Secondly, optimize communication methods and improve communication content to enhance communication effectiveness. Thirdly, differentiated regulation policies should be formulated for different economic cycles. Finally, optimize the intermediate variable of monetary policy and straighten out the transmission mechanism of the central bank's policy interest rate. In addition, future studies are still needed to explore whether the impact of central bank communication on asset prices in financial markets has non-linear characteristics, and how to fully mine text information with big data methods.

Over the past two decades, the real estate market has emerged as a pivotal industry in China's economy, with housing prices continuously escalating due to rapid market development and fervent investment activities. This positive feedback loop, wherein housing and land prices mutually reinforce each other, has led to increased land grant revenues for local governments. Concurrently, local governments' financing through land sales has also surged, resulting in a burgeoning scale of local government debt. Recently, however, multiple pressures such as demand contraction, supply shocks, and weakened expectations have induced a downward trend in housing prices, thereby diminishing land grant revenues and local governments' debt-paying capacities. This has compounded the challenge of managing the substantial stock of local government debt accrued during the real estate boom. The interconnected mechanisms of housing price fluctuations, local government debt, and systemic financial risk, exacerbated by the implicit guarantees extended by local governments to state-owned enterprises and inefficiencies in government spending, have further complicated the local debt problem. If not addressed promptly, this issue could pose a significant threat to macro-financial stability.
Against this backdrop, two pertinent questions warrant in-depth examination: how will the debt stability of local governments be affected by continued fluctuations in housing prices？ And what roles do implicit guarantees and government spending efficiency play in this context？ To explore these questions, this paper constructs a dynamic stochastic general equilibrium (DSGE) model encompassing representative households, heterogeneous firms, local governments, commercial banks, and other sectors, building upon the frameworks of Iacoviello and Neri (2010) and Liu, Wang, and Zha (2013). The model incorporates realistic factors such as land finance, local governments' implicit guarantees to state-owned enterprises, and expenditure inefficiencies, providing a theoretical framework for analyzing the transmission of housing demand shocks and their impact on local government debt stability. The model parameters are calibrated and estimated based on relevant findings from authoritative literature and macroeconomic data.
The numerical simulation results indicate that local governments' land finance is an institutional factor affecting the stability of local government debt through housing price fluctuations. The implicit guarantees provided by local governments to state-owned enterprises exacerbate the impact of housing price fluctuations on the stability of local government debt and real output. These guarantees amplify the negative effects of housing price fluctuations on debt stability while improving government spending efficiency significantly mitigates the “house price-local debt” feedback mechanism. Enhancing government spending efficiency can effectively alleviate real estate market overheating and promote economic stability. However, while both increased spending efficiency and strengthened implicit guarantees can stimulate short-term economic growth, the former has a positive impact, whereas the latter may result in false prosperity.
Based on these conclusions, the paper proposes several policy recommendations. Firstly, institutional measures should be implemented to curb local governments' land financing behaviors and implicit guarantees to state-owned enterprises and to establish stable sources of local fiscal revenue. Secondly, the efficiency of local government expenditure should be improved by adjusting its structure, optimizing resource allocation, and enhancing governance effectiveness. Finally, targeted fiscal policies should focus on short-term effectiveness, directing government expenditure towards key areas that drive high-quality economic development, thereby improving the efficiency of local government spending.
Existing literature has adequately explored the impact of housing price fluctuations on local government debt, typically from a singular perspective. This paper offers several innovations. Firstly, it incorporates the real factor of implicit guarantees into the dynamic stochastic general equilibrium model, examining their role as “amplifiers” in the impact of housing price fluctuations on local government debt, thus better depicting the real characteristics of debt stability issues. Secondly, it investigates the mechanisms and effects of government spending efficiency on debt stability amidst housing price fluctuations, enriching current research and providing valuable references for policy formulation.
Future research could further enhance this study by incorporating additional economic variables, such as the macroeconomic environment and financial market volatility, to refine the model structure. Employing higher frequency data could capture the immediate effects of housing price fluctuations on local government debt. Moreover, extending the study to other countries and regions would help verify the generalizability and applicability of the findings.

The exacerbation of financial pressure on local governments leads to a series of adverse consequences, disrupts market development, negatively affects resource allocation, and worsens regional governance. These changes may further impact local governments, increasing their already strained financial pressure and exacerbating their fiscal difficulties. Therefore, alleviating financial pressure and preventing its adverse effects remain essential tasks for current economic development and social stability. Additionally, preventing corporate defaults is crucial for the stability of capital markets and the overall development of the national economy. Currently, research on corporate default risk mostly focuses on micro-level factors from the perspective of individual firms, while studies from an external macro-level perspective are relatively scarce. The research question of whether changes in fiscal pressure from local governments will affect the corporate default risk within their jurisdiction is of great significance in the current context.
The process by which local government financial pressure affects corporate default risk can be divided into two stages. Firstly, local governments transfer their pressure to enterprises by increasing revenue and reducing expenditures. Specifically, governments increase tax revenue and non-tax revenue, while reducing subsidies and unnecessary government procurement to alleviate financial pressure. Secondly, after passively bearing the financial pressure from local governments, enterprises experience changes in their fundamental factors. These changes include increased effective tax burden, impacts on investment behavior, increased debt levels, and reduced sales scale, ultimately leading to an increase in default risk.
Using Chinese A-share listed companies from 2003 to 2020 as the sample, this paper finds that: (1) For every one standard deviation increase in local government financial pressure, corporate default risk increases by 4.74% relative to the mean; (2) Compared to non-state-owned enterprises, state-owned enterprises are more affected by financial pressure, aligning with the “social function perspective” rather than the “resource constraint perspective”; (3) In terms of transmission mechanisms, local governments transfer financial pressure by increasing revenue and reducing expenditures, which in turn leads to changes in business behavior and ultimately increases corporate default risk; (4) The ability of enterprises to acquire resources, profitability, regional resource distribution, and regional economic development significantly moderate the relationship between financial pressure and default risk.
This paper makes theoretical contributions in two main aspects. Firstly, it expands the research on factors influencing corporate default risk, providing a new perspective for understanding default risk in the Chinese context. In China, local governments are policy implementers and important resource allocators within regions, playing a fundamental role in shaping corporate behavior. This paper explores the reasons for the aggregation of corporate default risk from a high-dimensional macro-level perspective, which helps to understand the relationship between other micro variables influenced by this factor and default risk from a more fundamental perspective. Secondly, it improves the analysis framework of “increasing revenue and reducing expenditure”, accurately depicting the process of financial pressure transmission by local governments. This paper introduces the dimensions of increasing non-tax revenue and reducing government procurement, expanding the existing transmission mechanism from two important aspects closely related to business operations. Furthermore, by analyzing the changes in corporate fundamentals caused by local government financial, this paper builds a bridge to understand how enterprises' response to pressure leads to changes in microeconomic consequences.
This paper has important practical implications for government policy-making and adjustment, corporate default risk prevention, and investors' understanding and avoidance of investment risks. Firstly, through rationalizing initial allocation, diversifying assessment goals, and diversifying fiscal revenues, excessive competitive spending by local governments can be reduced, alleviating financial pressure and avoiding systemic risks. Secondly, owners or managers of enterprises should consider the internal and external operating environment, optimize business structure, and allocate internal resources reasonably when making or adjusting decisions. This will help transform the constraining force of external pressure into nutrients and catalysts for business operations and development and prevent default risk caused by short-sighted behavior. Thirdly, capital market investors, while focusing on corporate performance and industry policies, should also analyze the current and future development possibilities faced by enterprises in conjunction with the regional economic situation. This will help investors make correct and reasonable investment decisions and avoid risks.

The 20th National Congress of the communist party of China clearly states, “Deepening structural reform in the financial sector and modernizing the central bank system.” Base currency injection forms the foundation and core of credit expansion and liquidity creation within the financial system. The People's Bank of China (PBoC) also emphasizes the need to “improve the mechanism for base currency injection.” As China's economy enters a new normal phase, the mechanism for base currency injection is gradually shifting from the foreign exchange reserve mechanism to innovative monetary policy tools. However, current research on monetary policy focuses primarily on the quantity and price of base currency issuance, with little consideration given to the structural characteristics such as channels and recipients of base currency injection. Changes in the mechanism and recipients of base currency injection can profoundly impact the liquidity landscape of the banking sector. This paper explores how the structure of base currency injection contributes to bank liquidity stratification. Furthermore, this paper discusses how liquidity stratification affects the risks faced by small and medium-sized banks.
Compared to foreign exchange channel, innovative policy tools channel involves direct lending to commercial banks, resulting in a discriminatory effect on the recipients of base currency injection. State banks have a greater advantage in obtaining base currency. This creates a situation where state banks accumulate liquidity while non-state banks face liquidity shortages, thus leading to “liquidity stratification”. By constructing bank-panel data from 2013-2022, this paper finds that the increase in the proportion of claims on other depository corporations triggers a rise in issuance volumes of interbank negotiable certificate of deposit (NCD) by non-state banks (small and medium-sized banks). However, this increase does not affect the issuance volumes by state banks. This indicates that the structural change in the base currency injection leads to bank liquidity stratification. The impact of the base currency injection structure on NCD issuance volumes is more pronounced in larger issuing banks, for higher ratings, or during period of the COVID-19 pandemic. Mechanism suggests that as the risk aversion level of state-owned banks increases, the impact of base currency injection structure on the NCD issuance by non-state banks becomes more pronounced. Further analysis suggests that the base currency injection structure exacerbates risk exposure of non-state banks through liquidity stratification. And when the risk aversion of state banks is relatively high, the positive impact of the base currency injection structure on bank risk is more pronounced. The transition in the base currency injection mechanism also results in the risk transfer from state banks to non-state banks.
The main contributions of this paper are as follows. Firstly, it analyzes the structural characteristics of the evolution of China's basic monetary issuance mechanism. It integrates the unique “state-owned vs. non-state-owned” bank heterogeneity framework of China and explores the impact of the base currency injection structure on the bank liquidity stratification, through the NCD issuance samples. Secondly, this paper compares innovative monetary policy with the foreign exchange reserve from the perspective of mechanism transformation and the central bank's operational preferences for implementing tools. It comprehensively elucidates how innovative monetary policy shapes the structural changes in base currency injection and further influences bank liquidity stratification, thereby enhancing our understanding of innovative monetary policy tools. Thirdly, this paper further analyzes the risk-driving factors behind liquidity stratification and its impact on the risk of small and medium-sized banks. It finds a more important risk transfer feature in the liquidity stratification pyramid framework in which state-owned large banks transfer liquidity to small and medium-sized banks.
This paper offers the policy implications. Firstly, there is a need to further enhance the PBoC’s mechanisms for base currency issuance and liquidity management framework. The central bank should intensify the implementation of structural monetary policy tools, and lower barriers for members participating in innovative monetary policy tools such as MLF (Medium-term Lending Facility). Secondly, this paper proposes incentivizing state-owned banks to increase their risk-taking and systematically strengthening the performance evaluation of risk-taking and liquidity management. Simultaneously, larger banks should reinforce credit cooperation with small and medium-sized banks. Thirdly, this paper proposes strengthening the management and risk prevention of NCD issuance among small and medium-sized banks to avoid excessive competitive issuance and competitive rate increases.

The Chinese economy is transitioning from a phase of rapid growth to one of high-quality development, with a greater emphasis on innovation-driven and quality-led growth. This requires long-term and stable financial support. However, for a long time, China's banking-dominated financial system has primarily supplied short-term loans, resulting in a significant shortage of long-term credit funds. This inadequacy fails to meet the long-term investment and high-quality development needs of entity enterprises. Existing research indicates that the highly concentrated structure of China's banking industry is a major factor leading to the mismatch between the supply and demand of long-term credit funds. In the institutional environment of financial repression, banks face low competitive pressure. Due to risk control considerations, banks prefer to provide short-term loans to enterprises and are reluctant to provide long-term loans. Meanwhile, large state-owned banks tend to allocate long-term loans to less efficient state-owned enterprises, while small and medium-sized enterprises (SMEs) and private enterprises of higher efficiency struggle to obtain long-term loan support.
According to the optimal financial structure theory, a country's banking structure can more effectively support the real economy only when it aligns with its industrial structure. Currently, China's industrial structure is dominated by SMEs, but the development of small and medium-sized banks (SMBs) has lagged. In 2009, the China Banking Regulatory Commission issued the “Opinions on Adjusting Market Entry Policies for Branches of Small and Medium-sized Commercial Banks (Trial).” This policy removed the restrictions on market entry and the limitations on the number of branches that joint-stock and city commercial banks could establish, leading to a rapid expansion in the number of their branches.
Based on this, this paper examines the impact of the expansion of joint-stock and city commercial bank branches on the term structure of corporate loans. We find that SMB branch expansion can extend the term structure of corporate loans. Compared to large enterprises, it has a stronger effect on SMEs, supporting the hypothesis of “Comparative Advantages of SMBs”. Meanwhile, the effect is more pronounced for private enterprises. Mechanism tests show that SMB branch expansion intensifies banking competition and reduces information asymmetry and agency conflicts by shortening the distance between banks and enterprises, thereby increasing banks' willingness to provide long-term loans to enterprises. We also find that the development of digital finance enhances commercial banks' ability to provide long-term loans to real enterprises, especially to SMEs and private enterprises. Finally, SMB branch expansion helps alleviate the “short-term loans for long-term investments” of enterprises, especially SMEs and private enterprises.
The main contributions of this paper are as follows. First, while most existing studies examine the impact of bank competition on corporate investment and financing based on data from all bank branches, this paper focuses on the expansion of joint-stock and city commercial bank branches. By constructing firm-level spatial distribution data of SMB branches, it captures the specific banking environment changes each firm faces, providing a more direct and precise identification of the microeconomic effects of SMB branching deregulation. Second, through a comparative analysis of the differential impact of SMB branch expansion on the loan terms for large enterprises versus SMEs, we find that SMBs have a greater advantage in serving SMEs. This not only deepens the understanding of the heterogeneous functions of SMBs but also provides micro-level empirical support for the optimal financial structure theory. Third, Zhang et al. (2022) found that digital finance development inhibits the expansion of joint-stock and city commercial banks. We further find that digital finance development enhances banks' capabilities in information acquisition and screening, thus improving their ability to provide long-term credit to entity enterprises, complementing existing research.

The financial constraint is both the major research issue of corporate finance and the focus of government policies. Recent reports on the work of the government have emphasized the importance of alleviating difficulties and high costs faced by firms in accessing financing. The regulatory authorities have implemented a series of measures to alleviate firms' financial constraints. When discussing the firms' financial constraint issue, most existing literature, based on China's bank-dominated financial system, focuses on the aspect of credit supply. Especially, with the rapid reform of the banking industry, there is a new trend to research firms' financial constraints in the aspect of bank competition. However, the interactions between banks and the capital market are ignored in most literature. This paper discusses the interactive effects of short selling on bank competition and corporate financial constraints in the context of the possibility for banks to gather information on firm value from capital markets.
Theoretically, information asymmetry exists between banks and firms in an imperfect credit market. The increased competition impels banks to gather and uncover firms' information, which lowers the information asymmetry, and thus alleviates firms' financial constraints. Meanwhile, short selling improves firms' information disclosure and reduces their financial risks. There are distinguished necessities for banks to mine firms' information under different short selling constraints. In other words, short selling is not only a key factor of firms' financial constraints, but also the institutional background that affects the relationship of bank competition and firms' financial constraints.
Based on the gradual reform of the short selling system in China's capital market, this paper adopts a sample of listed companies from 2008 to 2020 and implements a time-varying DID method to examine how bank competition and short selling affect the enterprises' financial constraints. Our results show that the short selling mechanism attenuates the impact of bank competition on corporate finance constraints. The short selling is proved to relieve the information asymmetry between banks and firms, and alleviate firms' financial risks, which results in such diminishment. The heterogeneity analysis shows that the interactive effects of short selling on bank competition and corporate financial constraints are pronounced mainly in industries with higher external financial dependency, state-owned firms, large state-owned banks, and city commercial banks. Further analysis shows that the interaction between short selling and bank competition also acts on the amount of firms' debt financing and the risk of debt default, but the effect on the cost of debt financing is insignificant.
Compared with relevant literature, the three main contributions of our paper are as follows. First, while the existing studies suppose bank competition and the short selling mechanism have separate impacts on firms' financial constraints, this paper combines bank competition and short selling to explore the problem of corporate financing constraints, linking the relationships between banks and firms through the channels of information asymmetry and financial risks. Second, most of the literature focuses on the scope of bank-firm relations from the perspectives of firm characteristics, industry characteristics, bank structure and the degree of bank competition, and fails to discuss the bank credit issues in the context of the impact of institutional changes in the capital market. This paper, in the context of the reality that competition in the banking industry is comparatively sufficient, examines the relationship between bank competition, the short selling mechanism and corporate financing constraints. We then identify the conditions of industry, enterprise and bank characteristics for the short-selling mechanism to weaken bank competition and alleviate corporate financing constraints, revealing the important theoretical and policy value of capital market institutional construction in alleviating the constraints of corporate indirect financing. Third, the short selling mechanism as an important policy event in the progressive reform of the capital market provides new ideas for many classical problems. This paper extends the policy effect test of the short selling system reform to the field of bank-firm relations from the perspective of comparative institutional.

Under the impact of a new wave of industrial transformation and technological revolution, the value of data is rapidly accelerating, and digital technology is integrated with the real economy, promoting the development of the digital economy. Meanwhile, household asset allocation efficiency affects property income, wealth accumulation, and social wealth distribution, which in turn impacts household welfare. Therefore, exploring how the development of the digital economy enhances household asset allocation efficiency and promotes property income is of significant practical importance.
Taking advantage of the unique attributes of the digital economy, this study measures the digital economy index for 262 prefecture-level cities in 2012, 2014, 2016, and 2018, and matches household micro-survey data with city-level data to explore the relationship and mechanism between digital economy development, household asset allocation efficiency, and property income using econometric models. The results show that digital economy development significantly increases property income by improving household asset allocation efficiency. Specifically, the main channels include enhancing financial accessibility, facilitating information access, and alleviating liquidity constraints. Meanwhile, the impact of digital economy development on property income exhibits obvious asymmetric effects. These findings still hold up after robustness tests such as replacing the core explanatory variables, conducting instrumental variable regression, and selecting the “Broadband China” strategy as a quasi-natural experiment.
The contributions of this paper are as follows: First, while existing literature on the digital economy often focuses on macro-level impacts such as high-quality development, total factor productivity, and economic growth (Zhao et al., 2020; Liu & Ma, 2020; Qian et al., 2020), few studies explore the relationship between digital economy development and household property income from a macro-micro perspective. This paper offers a more detailed analysis by examining the effects of digital economy development on household property income from city and household levels. Second, this study provides an examination of the channels through which the digital economy influences household property income by evaluating its impact on household asset allocation efficiency. It identifies that increased financial accessibility, improved information availability, and reduced liquidity constraints are the underlying mechanisms through which digital economy development enhances asset allocation efficiency, thereby extending and deepening existing literature. Third, by employing the “Broadband China” strategy as a quasi-natural experiment, this paper addresses endogeneity issues and improves the causal identification between digital economy development and household property income, thereby enhancing the robustness of the above findings.
The conclusions of this study have several policy implications. First, given that the digital economy can enhance household asset allocation efficiency and thereby boost property income, policymakers should advance financial technology innovations and improve financial products and services, particularly for low-and-middle-income households, to reduce wealth inequality and achieve common prosperity. Additionally, there should be more investment in internet infrastructure and Digital China technology to maximize household welfare. Second, the promotion effect of the development of the digital economy on the efficiency of asset allocation in rural areas and low-income households needs to be deepened, which requires relevant departments to implement a precise, dynamic, and differentiated digital technology strategy. Third, the government departments should also address how to improve household human capital, so that households can better share the benefits of the digital economy. Finally, the asymmetric effects of the digital economy on asset allocation efficiency indicate that financial institutions should consider individual risk preferences. When providing additional credit support to households with a certain amount of debt, it is necessary to strengthen the screening of investors to ensure the optimal allocation of society credit resources.

Environmental regulation refers to the policies, regulations and strategic measures taken by a country to limit or eliminate pollution for the purpose of environmental protection. It is a method for the government to solve the “market failure” of environmental problems. From the scientific outlook on development to the strategic deployment of the two-carbon goal, the intensity of China's environmental regulation continues to increase. Data from the Ministry of Ecology and Environment of the People's Republic of China show that more than 119 new or revised environmental pollution control standards have been issued since 2010. In January 2015, the New Environmental Protection Law was implemented. At the end of 2017, China launched carbon emissions trading. On January 1, 2018, the environmental protection tax was officially levied. In March 2018, the Ministry of Ecology and Environment of the People's Republic of China was established to promote environmental protection and climate change policies. In 2020, the Central Economic Work Conference listed “carbon peak and carbon neutral” as a key task, and the scope of environmental regulation was further expanded from heavily polluting industries to industries with high energy consumption and high emissions. At the same time, it is also supplemented by special actions such as environmental protection management, special supervision,to promote the implementation of policies.Therefore, system design, comprehensive deployment and continuous strengthening of environmental regulation have become an inevitable trend.
In the financial sector, central banks and financial institutions have also reached a consensus: environmental and climate risks will lead to financial risks, and financial institutions must strengthen environmental and climate risk supervision. In 2017, eight regulatory departments, including the People's Bank of China, jointly initiated the establishment of the Central Banks and Supervisors Network for Greening the Financial System (NGFS), which is dedicated to monitoring and studying the impact of environmental and climate factors on financial risks. In 2019, the organization officially proposed that climate change is the source of financial risks.
China's bond market has experienced frequent defaults in recent years.Are environmental regulations a cause of the subsequent defaults in the bond market？ If so, what are the mechanisms that trigger default risk？ Is there a viable solution？ The impact of environmental regulations on default risk has not been discussed deeply. Green technology innovation plays an important role in the transmission process of environmental regulation to default risk. On the one hand, green technology innovation, like ordinary innovation, helps to improve product competitiveness and build competition barriers, thereby increasing enterprise value. It also helps to obtain external financing, thus reducing default risk. On the other hand, green technology innovation is a special technological innovation with environmental protection as an important goal, which may play an important role in the default risk caused by environmental regulations.
Based on bond default events, environmental policy stringency (EPS) index data proposed by OECD, and green patent data samples, this paper establishes a zero-inflation Poisson model to test the impact of environmental regulations on bond default risk and analyzes the risk inhibition effect of green technology innovation. The mechanism of the above influence is further explored from the perspective of cash holding and financing cost by a fixed effects model. The innovations of this paper are as follows: First, environmental regulation is included in the study of determinants of default risk. With a forward-looking perspective, this study enriches the understanding of bond default factors analysis, provides a basis for government policy prediction and policy formulation, and gives an important reference for enterprises and financial institutions to effectively prevent bond default risk. Second, from the perspective of cash depletion and financing cost, it reveals the channels through which environmental regulations affect default risk. Third, we test the risk inhibition effect of green technology innovation to provide strategic guidance for enterprises to cope with the upgrading of environmental regulations and to provide risk prediction guidance for bond market investors.
The research shows that environmental regulations increase cash depletion and financing costs of enterprises, thus increasing the default risk of debt-issuing enterprises. Green technology innovation has an important risk inhibition effect. In the process of environmental regulation upgrading, enterprises with green technology innovation have a lower default risk. After the enhancement of environmental regulations, green technology innovation can help alleviate the decline in net cash flow and the increase in financing costs. In this case, enterprises have more cash flow and lower bound premiums, which leads to a lower default risk.
The research findings in this paper have important policy implications for promoting green transformation, achieving high-quality development of “dual carbon” strategic goals, and deepening green finance. First, the bond approval department should pay more attention to the assessment of enterprises' environmental protection input before the bond issuance. It should strengthen the review and approval process of environmental impact assessments, conduct evaluations of green technologies. Second, bond issuers should strengthen green technology innovation, convert innovation into green and low-carbon productivity, invest in green technology from the perspective of dual-carbon goals, and continuously enhance technology to meet the requirements of green and low-carbon development.

M&A plays an important role in the process of promoting high-quality development. However, due to the imperfection of internal and external governance, the M&A market is full of chaos. This phenomenon hinders the potential path of optimizing resource allocation efficiency through M&A to achieve high-quality development. In the A-share market, performance compensation commitment is originally an important way to protect investors' interests. However, a large number of performance commitments are not completed with high quality, and there may be manipulation (such as precise compliance), which reduces the efficiency of the market.
This article identifies the performance commitment manipulation with empirical research methods and explores the way to improve the performance commitment fulfillment quality.By manually collecting the completion of performance commitment agreements signed by A-share listed companies in China from 2008 to 2021, the study finds that performance commitment manipulation is widespread, and media monitoring could significantly suppress performance commitment manipulation. In terms of the motivation of performance commitment manipulation is stronger, the opportunity is larger, and the originality of media coverage is lower, the governance effect of media monitoring is weaker, and vice versa. According to the mechanism analysis, media monitoring mainly plays the role through three channels: increasing investors' attention, audit supervision input, and regulatory pressure.
The conclusions indicate that the market needs to notice the performance commitment manipulation and utilize the governance role of the media to improve the quality of performance completion and protect the interests of small and medium-sized investors. Therefore, this study proposes the following policy recommendations: First, the conclusions confirm the important role of the media in improving the performance of M&A. The media should be fully utilized as an external governance force to maintain the order of the capital market. Second, media has the characteristics of wide coverage and low cost. External information users could obtain valuable information to save information collection costs and reduce information asymmetry, which helps curb management opportunism. Third, the influence of the media on decision-making is limited by certain conditions.This suggests that in the process of media commercialization reform, the media should consider conducting in-depth reporting through private information collection and analysis to provide high-quality incremental information for the market and improve information transparency. At the same time, listed companies should improve information disclosure to enhance investors' access to information and reduce their excessive dependence on information intermediaries.
This paper makes several contributions to the literature: First, “precise compliance” in the performance commitment has been mentioned in some literature, but there is no clear definition and concrete evidence for the performance commitment manipulation. This article proposes the conception and provides direct empirical evidence based on whether the completion ratio jumps at the breakpoint, confirming that there is significant performance commitment manipulation in the agreement. Second, few studies have discussed how to suppress performance commitment manipulation, especially when both parties have information advantages and the possibility of collusion. External governance forces are particularly important. This article examines the governance effect of media monitoring on performance commitment manipulation. Unlike previous studies that focus on the impact of the media on investment decisions in the M&A (such as during the negotiation process or before the completion), this article discusses the performance commitment period in a certain period after the completion to test the long-term economic consequences of media supervision on performance commitment manipulation and provides an important supplement to existing literature. Third, this article has certain practical implications for regulating and improving the quality of the M&A. Financial media plays a positive role in curbing performance commitment manipulation and improving the quality of the M&A. In the future, securities regulatory authorities should pay attention to the monitoring and governance function of this important information intermediary, which will help save information collection costs and improve the efficiency of the regulation.