The major purpose of monetary policy is to stabilize the fluctuations in economic variables and smooth the development of the macro-economy. Obviously, different exogenous shocks yield significant heterogeneous effects on the transmission mechanism and monetary policy choices. Hence, identifying the sources and characteristics of the crucial driving forces of economic dynamics is the prime task of the monetary authority. In the literature on real business cycles, including research on monetary policy in the New Keynesian framework, neutral technology shocks are treated as the main driving forces of economic variations.
However, empirical evidence from structural vector auto-regressions shows that economic fluctuations probably result from other exogenous shocks, such as investment-specific, labor supply, real interest rate, consumption, and housing demand shocks. The role of investment-specific shocks on the real business cycle is gradually attracting research interest. Several studies show that investment-specific shocks explain only about 30% of the volatility in aggregate output since World War Two. Yet some investigations of investment-specific shocks on economic cycles in China find that these shocks account for 90%, 62%, and 66% fluctuations of GDP, investment, and capital accumulation, respectively.
Inspired by these findings, we first construct a two-sector DSGE economy featuring durable and non-durable goods. The non-durable goods can only be used for consumption, whereas the durable goods can be used either for consumption by entering the household utility function, or as investment and capital goods entering firm production in both sectors.
Based on the DSGE model mentioned above, we analyze the implications of investment-specific shocks for optimal monetary policy design and the welfare consequences of alternative monetary policy rules. Our findings are as follows. First, the optimal monetary policy is unable to stabilize price inflation and output simultaneously. It is optimal to increase the variation in the price of durables relative to non-durable goods, which in turn reduces the impact of investment-specific shocks on the real marginal cost and the incentive for firms in non-durable sectors to adjust prices, thus improving social welfare. Meanwhile, the rise in fluctuation of the relative price of durables amplifies the variation in output in non-durable and durable sectors, household consumption, and aggregate investment.
Second, we compare the welfare results of three different monetary policy targeting regimes, targeting non-durable PPI inflation, weighted average PPI inflation, and CPI inflation. Under all exogenous shocks, targeting non-durable PPI inflation is always able to increase social welfare, targeting weighted average PPI inflation has the worst effect on social welfare, and targeting CPI inflation has an effect somewhere between those of the other two. When monetary authorities choose to target non-durable PPI inflation, the welfare performance under investment-specific shocks is about twice that under a neutral technology shock. The comparison illustrates that the monetary policy trade-offs between stabilizing price inflation and stabilizing output are tensioned by investment-specific shocks. A sensitivity analysis shows that the results are robust when key structural parameters are changed, such as the steady-state weight of durable consumption goods in aggregate consumption, the Frisch labor supply elasticity, and the depreciation rate of durable goods.
The conclusions of this study lead to the following suggestions for monetary policy by the People's Bank of China. First, in a dynamic stochastic general equilibrium featuring multi-sector, the central bank should consider the variations in relative prices in different sectors, and pay attention to their role in stabilizing price levels and real GDP. The operation space for monetary policy could be improved by reasonable movements in relative price. Second, the central bank should take into account the properties of different exogenous shocks. Taking our benchmark model for example, the monetary bias or stance under an investment-specific shock is obviously different from that under a neutral technology shock.

The 2008 global financial crisis had a significantly negative effect on the real economy, and the systemic risk in the financial sector attracted unprecedented attention from academics and policy makers. The high macro leverage and credit risk are currently prominent financial issues in China. Moreover, the interest rate hike and balance sheet reduction of the Federal Reserve and the U.S.-China Trade War are having negative spillover effects. As a result, China's regulatory bodies have begunimplementinga macro prudential policy to defend the bottom line of no systemic risk.
Although numerous studies have examined the systemic risk in China, the literature in this area has several shortcomings.First,although studies have used several risk indicators, such as MES, SES, ΔCoVaR, and SRISK, to quantify the marginal contribution that a single financial institution makes to the overall systemic risk, no studies have comprehensively evaluated the applicability of these indicators to China's financial system. Moreover, we find that there are prominent differences in the systemic importance rankings based on MES, ΔCoVaR, and SRISK. Second,studies have not back-tested the effectiveness of the above risk indicators from the perspective of negative externality, which is the most essential characteristic of systemic risk. Third, several studies simply use the empirical approximation “LRMES=1-exp (-18*MES)” proposed by Acharya et al. (2012) to quantify the SRISK of individual financial institutions in China. However, the approximation is based on the U.S. financial system and compatibility with China's financial system has not been seriously explored. Lastly, the literature uses either the capital adequacy ratio minimum requirement (8%) under Basel II or the historical average of prudent capital of various institutions to determine the proportion of prudent capital for all of China's financial institutions, which include commercial banks, security companies, and insurance companies, and has not carefully considered China's financial regulations.Therefore, we aim to fill these gaps by constructing micro-level systemic risk indicators that are applicableto China's financial system.
To solve the aforementioned problems, we address the following issues. First, we examine whether the empirical approximation “LRMES=1-exp (-18*MES)” is applicable to China's financial system,and if not, whether it is possible to derive a similar approximation for China.Second, we attempt to determine the proportion of prudent capital for China's financial institutions, and evaluate the applicability of the aforementioned systemic risk indicators to China's financial system.
First, using the derivation of the principle of the above approximation, we find that “LRMES=1-exp (-18*MES)” is not applicable to China for the following reasons: (1) the approximation, which is derived from the U.S.financial system, is not universal for all the economies; (2) if we define a systemic event as a stock market decline of 40% over 6 months, the approximation “LRMES=1-exp (-13*MES)” is applicable to China; (3) if we define a systemic event as a stock market decline of 10% over 1 month, the approximation “LRMES=1-exp (-3.5*MES)” is applicable to China.
Second, we determine the prudential capital ratios for banks, securities, insurance, and real estate companies as 11.5%, 18%,15%, and 20%, respectively. It is not reasonable to determine the same prudential capital ratio for all financial and real estate institutions because institutions in different sub-industries have different operating features and capital adequacy ratios.Thus, we need to determine specific prudential capital ratios for these institutions according to the relevant supervision requirements.
Last,and most importantly, based on the above findings, we conclude that SRISK is more effective than the other indicators in measuring marginal contributions that financial institutions make to the systemic risk in China for the following reasons.First, only SRISK can simultaneously cover information on the size, leverage, and interconnectedness of firms.Second,the top 20 SIFIs identified and sorted by SRISK are in line with the list of SIFIs identified by the CBIRC, while the results based on the other indicators are very different from the CBIRC list.Third, the back-testing results indicate that the “overall SRISK value” can effectively predict China's macroeconomic activities. Fourth, the results based on MES and ΔCoVaR suggest that the regulatory authorities should pay more attention to financial institutions with small market capitalization, large volatility, and strong interconnection when the market tail risk is rising, which obviously deviates from the prudential regulatory practice.

A great deal of attention has been paid to understand the Federal Reserve (Fed) monetary policy's spillover effects on international financial markets, with the increasing economic and financial globalization. Extensive studies have documented that the Fed's monetary policy has significant impact on international asset prices (e.g., Hausman and Wongswan, 2011; Rosa, 2011). China is the largest trading partner of the US, thus it is reasonable that the Fed's monetary policy should have impacts on Chinese asset prices. However, Hausman and Wongswan (2011) and Rosa (2011) recently document that Chinese asset prices do not respond to Fed's monetary policies. It is important to note that their sample periods are mainly prior to 2005, in which Goh et al. (2013) find weak correlation between US economy and Chinese asset prices due to the underdeveloped financial market in China. In this paper, we re-test whether the Fed's monetary policies can have impacts on Chinese asset prices using the event study approach with extended longer sample periods.
We take the FOMC statement release as events to investigate the impacts of Fed on Chinese bond and stock markets from January 2003 to December 2016. The advantage of the approach is that we can focus on the responses of asset prices to the Fed's monetary policy over a short window of time to eliminate other unrelated information. In addition, following Kuttner (2001) and Gürkaynak et al. (2005), we also test the effects of the anticipated monetary policy (AMP), unanticipated monetary policy (UMP) and forward guidance (FG) to explore the role of expectation in monetary policy.
The main findings of this paper can be summarized as follows. First, we find that Fed's monetary policy does have significant effects on Chinese asset prices. In particular, an interest rate rise reduces bond and stock returns, while an interest rate cut increases bond and stock returns. This finding is different from the previous literature that documents no impact of Fed's monetary policy on Chinese asset prices. To do this, we use close-to-open overnight returns instead of daily returns as shown in Hausman and Wongswan (2011). Note that the Chinese close price is not affected by FOMC due to the lagged trading time in US, but the Chinses open price will incorporate information of Fed's monetary policy. As a result, close-to-open overnight returns will be clean enough to estimate the spillover effects of Fed's monetary policy accurately. In addition, earlier researches are conducted before 2005 when the Chinese financial market is still immature and the transmission mechanism of the Fed's monetary policy is underdeveloped.
Second, we also document that the AMP has a significant impact on bond and stock returns, and positive AMP generates negative asset returns, which is in sharp contrast to the evidence as shown in Bernanke and Kuttner (2005) that find the relationship between AMP and asset prices is insignificant. It indicates that although the Fed's monetary policy has been expected by the market, it still has significant impacts on Chinese asset prices when interest rates are adjusted as the market expects. This paper provides empirical facts that supports the New Keynesian theory from the perspective of open economy, that is, monetary policy is effective. In addition, the reaction of Chinese bond market to Fed's UMP is stronger than AMP, in line with the results in Kuttner (2001). And, we find that Chinese bond returns tend to increase when Fed conveys that there will be an interest rate hike in the future based on FG.
Third, we also uncover that the Chinese stock market volatility will increase once the Fed's monetary policy is adjusted. In addition, the stock volatility reactions to UMP and FG are significantly positive, indicating that the Fed's monetary policy will increase Chinese economic policy uncertainty and stock market volatility.
Our findings have important implications for investors and regulators. First, this paper shows significant spillover effects of Fed's monetary policy, so the Chinese policy makers should take it into account when making Chinese monetary policy. Second, monetary policy makers should take advantage of the expectation management to improve the effectiveness of monetary policy, so as to smooth the international monetary policy shock properly. Third, that the Chinese market investors should pay attention to the impacts of Fed's monetary policy on Chinese asset prices to improve their returns on investment.

Disease is the primary cause of poverty in China. Following the implementation of the Chinese poverty reduction program, the fraction of diseases caused by poverty increased from 42.2% of the impoverished population in 2013 to 44.1% in 2015, which corresponds to nearly 20 million people. Worldwide, approximately 100 million people fall into poverty as a result of medical expenditure every year, and 150 million suffer from the economic shock of medical expenses. Thus, disease related poverty is not only a primary concern of China but also a global challenge.
Health insurance is an important tool for managing health risks and mitigating the economic shock of disease. It is a widely accepted hypothesis that health insurance alleviates the poverty problem. However, the empirical evidence on the effectiveness of health insurance in alleviating poverty remains inconsistent. Some research suggests that health insurance has a significant effect in reducing poverty, and that significance increases over time. Other research suggests that this effect is insignificant or minimal because of a low degree of coverage, inaccurate targeting of groups, and the long and complex process of making claims. In this paper, we examine this issue from a new perspective, i.e., the heterogeneity of health status, to explain the inconsistent poverty reducing effects of health insurance.
We address the following two research questions. First, we examine whether the impact of health insurance on poverty reduction depends on health status by focusing on the change from having no health insurance to having health insurance. Second, we examine whether the impact of increased health insurance coverage on poverty reduction depends on health status by focusing on the change from low health insurance coverage to high coverage.
Using data from the China Health and Retirement Longitudinal Study (CHARLS) in 2011, 2013, and 2015, we construct an asset-based “vulnerability to poverty” index (i.e., the probability of poverty) at the individual level. Next, we use propensity score matching with difference-in-difference (PSMDD) to estimate the effect of health insurance participation on the poverty reduction in different health groups. We also use a multivariate regression to estimate the impact of health insurance coverage on poverty reduction, and find that an individual's health status moderates the relationship between health insurance and poverty reduction. Participation in health insurance and increasing the health insurance coverage reduce the levels of poverty among poor-health individuals. However, this poverty reduction effect is insignificant for good-health individuals. In addition, we further analyze the mediating effects of the labor supply and medical expenses on poverty reduction, and find that health insurance reduces poverty through improving the labor supply.
This paper makes the following contributions to the literature. First, we theoretically and empirically fill the research gap on whether health insurance has different poverty reduction effects on populations with different health status. Second, the literature focuses on analyzing the impact of health insurance participation, i.e., the treatment effect of having health insurance compared with no health insurance. We extend this analysis by examining the impact of the degree of health insurance coverage, considering the over 95% health insurance coverage rate in China. Third, we examine the mediating effects of the labor supply and medical expenditure on the relationship between health insurance and poverty reduction. We provide the first evidence showing how health insurance reduces poverty through improving the labor supply.
Our empirical analyses show that participation in health insurance and improving the degree of coverage have significant effects in reducing poverty under certain conditions, namely, a relatively long period of insurance coverage and targeting people in need (i.e., those with poor health). Considering the limited resources available for poverty reduction programs, we suggest that more resources should be allocated to the unhealthy poor. Policy makers should consider the heterogeneity in the health status of the population and consider offering different health status groups different reimbursement rates.
Our paper provides several directions for future research. First, more empirical tests are needed to determine whether different insurance products have different effects in reducing poverty. Second, because progressive coverage may create a moral hazard, researchers should develop more effective approaches to control for the moral hazard in poverty reducing insurance products.

This study examines the conditions under which industrial policy can effectively promote the upgrading of the global value chain (GVC). Industrial policy has returned to the agenda of international development, as industrialization and economic structural transformation is at the heart of the Sustainable Development Goals (SDGs) that succeeded the Millennium Development Goals (MDGs). Although there is a basic consensus on the need for industrial policy given the market failures, researchers disagree on how to implement such a policy. The Chinese government has proactively deployed its own industrial policy to enhance exports by implementing the Leading Industries Support (LIS) policy in export processing zones (EPZs) since 2000. Against the background of stagnant global trade growth and China's industrial transformation, changing the role of enterprises in the international division and continuously upgrading the GVC has become increasingly prominent and important. This policy serves as a quasi-experiment enabling us to explore the effectiveness of an industrial policy that promotes GVC upgrading.
We analyze this quasi-experiment using the difference-in-differences method, taking enterprises supported by the LIS policy as the experimental group and those without such support as the control group. To measure the production chain position of export enterprises (i.e., the GVC position) we use the method of Chor et al. (2014). Our empirical data comes from four main sources: (1) the official list of Chinese economic and development zones; (2) China's Industrial Enterprise Database; (3) Chinese customs data; and (4) the World Input-Output Table.
Our key findings are as follows. (1) The LIS policy for the EPZ negatively affects the GVC upgrading of export enterprises, and this finding holds after rigorous robustness checks. (2) Delving deeper into the effect of the LIS policy on heterogeneous firms, we find that the negative impact on GVC upgrading is greater for heavy industry enterprises and enterprises with a large share of state-owned capital. (3) Inspired by the new structural economics, we further test whether the effectiveness of the industrial policy hinges on the alignment of prioritized sectors with comparative advantages. We find that the LIS policy has little negative effect on industries in line with their comparative advantages and even has some positive effect on industries that are better aligned with comparative advantages. We also find that the negative effect of the LIS policy on GVC upgrading is almost insignificant in industries with low resource misallocation.
Our study makes three original contributions. First, we extend the analysis of the effectiveness of Chinese industrial policy from the sector to the GVC level. Second, methodologically we use a quasi-natural experiment to explore the impact of industrial policy on GVC upgrading, which can contribute to a better understanding of the disputed effects of industrial policy. Finally, our study explores the effectiveness of industrial policy depends on the degree of alignment of the prioritized sectors with comparative advantages and resource (mis)allocation.
Regarding policy implications, our findings imply that the government should act to promote GVC upgrading, but not in an unlimited way; that is, industrial policy should be precisely positioned for the comparative advantage of industries, but also premised on avoiding the mismatching of resources. Therefore, this study provides a reference for the government when implementing future industrial policy. From the overall perspective, there should be a boundary in policy implementation. While it should take advantage of situations to guide the industry with comparative advantages, it should be limited on the premise of not causing a mismatch of industry resources. In terms of specific industrial policies, the EPZ policies targeted at expanding exports in the early years are obviously difficult to adapt to the current demand for GVC upgrading of export enterprises. Therefore, the integration of export processing zones into Free Trade Zones (FTZs) will become an important direction in promoting GVC upgrading in the future.

Harmonious regional development and synergistic regional innovation have become the cornerstones for building the modern economic system in present China. Realistically, however, we need to coordinate not only the relationship between internal regional economic development and regional innovation, but also the spatial relations between interregional economic development and regional innovation. Researchers have neglected the reverse influence of regional innovation on economic agglomeration and the spatial interactions between interregional economic agglomeration and regional innovation.
Based on actual needs and the deficiencies of previous studies, this study theoretically and empirically examines the interactive relationship between economic agglomeration and regional innovation and the spatial spillover effects. First, we analyze the interaction mechanism between economic agglomeration and regional innovation and the spatial spillover mechanism. Then, based on the data from 152 county-level administrative regions of China's Yangtze River Delta from 2000 to 2016, we verify the endogenous bidirectional effect between economic agglomeration and regional innovation and spatial spillover using the spatial simultaneous equation model and the generalized spatial three-stage least squares method (GS3SLS). Finally, by combining a mediation effect model, we test the reverse influence mechanism of regional innovation on economic agglomeration.
The empirical results show a mutual promotion between economic agglomeration and regional innovation. Ignoring the reverse effect of regional innovation on economic agglomeration leads to significant overestimation of the promotive effect of economic agglomeration on regional innovation. Both economic agglomeration and regional innovation have significant spatial spillover and regional interaction effects, which means that local and neighborhood economic agglomeration significantly promotes local regional innovation, and local and neighborhood innovation significantly promotes local agglomeration. The boundary test of the spatial spillover effects shows that the spatial spillover and interaction effects of economic agglomeration and regional innovation both weaken with increasing distance. The spatial spillover effect of economic agglomeration and regional innovation is more apparent within 500 kilometers, while the regional integration effect is limited to within 400 kilometers. In other words, the effect of neighborhood economic agglomeration on local regional innovation and the effect neighborhood innovation on local economic agglomeration is limited to within 400 kilometers.
Based on these empirical results, we further verify the reverse influence mechanism of regional innovation on economic agglomeration. The estimation result of the mediation effect model shows that regional innovation reacts to economic agglomeration through the effect of a growth pole, the effect of optimized industrial structure, and the innovation network.
The main contribution of this paper is as follows. First, we systematically analyze the bidirectional influence between economic agglomeration and regional innovation and the regional interactive influence mechanism, especially by analyzing and verifying the reverse influence mechanism of regional innovation on economic agglomeration. Second, we consider and verify the spatial spillover effect of economic agglomeration and regional innovation. Third, we identify the geographical boundary of the spatial spillover effect of economic agglomeration, regional innovation, and their interactive influence.
This study has important policy implications for coordinating economic development and regional innovation to build a regional innovation community. We argue that economic agglomeration and regional innovation can achieve a win-win situation. Regional development and regional innovation policies should be integrated and interconnected. A global strategy of economic development and regional innovation should be set up, and a mutually beneficial symbiotic pattern of regional development and innovation established. Both regional integration and the construction of an innovation community require such a win-win public interest platform.

In recent years, increasing attention has been paid to the role of the M&A (merger and acquisition) market in improving the quality of companies and optimizing the allocation of resources. The scale of the M&As of listed companies has expanded year by year, and exceeded 1 trillion RMB in 2015. The active M&A market emerged when China's economy began to shift from high-speed growth to high-quality development, and the successful transformation of traditional enterprises has been a key factor in achieving long-term stable economic growth. Therefore, whether M&As, especially diversified M&As, can help enterprises successfully transform has become an increasingly important issue for all parties.
Diversified M&As refer to M&As in which the acquirer and the target are from different industries. Foreign studies and the early domestic research have generally found that diversified M&As do not perform as well as mergers within the same industry. However, considering the rapid development of the M&A market in China, we believe that the performance of diversified M&As may have changed. In this paper, we use the M&A data of A-share listed companies from 2008 to 2014 (from the Wind database). The cumulative excess returns of the intra-industry and diversified M&As in the event window are 18.73% and 27.15%, respectively, and diversified M&As carry a premium of 8.42% compared with intra-industry M&As. To investigate why diversified M&As have a premium, we explore the determinants of different types of M&As and the underlying roots of the M&A premiums. First, we find that a lower return on assets before a merger can predict whether a company chooses to conduct a diversified M&A, which suggests that many acquirers have reached a developmental bottleneck in their original industry and have to enter new business areas through diversified M&As. Second, we find that the proportion of the profit from a newly acquired business and the difference between the profit of the newly acquired business and the original business can significantly explain the diversification premium. Our results consistently show that companies with weak performance achieve transformation through diversified M&As. We also use the change in performance over one to three years after the merger as an explanatory variable and find that the improvement in a company's performance is established within one to three years. This shows that investors recognize the improvement in a company's fundamentals in an M&A. Thus, the stock price response on the announcement day is not solely due to the optimism of investors.
The results of this paper show that many poorly performing companies have undergone transformations through diversified M&As, which not only improved their performance but also gained the attention of investors. However, we need to examine why good quality assets are being acquired by poorly performing listed companies through M&As. The reason may be that the listing and delisting system in the Chinese capital market has some limitations. On the one hand, high-quality assets cannot obtain financial resources through IPOs. On the other hand, enterprises with poor performance still have a relatively high shell value because they will not be delisted (Li and Cheng, 2006). Under these constraints, the optimal choice of both parties is to integrate the high-quality assets of the target enterprises and the financial resources of the listed enterprises through an M&A. Because the two parties are likely to be in different industries, the M&A will be presented in the form of a diversified M&A. To further confirm that diversified M&As help enterprises transform, we exclude three alternative theories that may explain the preference for diversified M&As: principal-agent theory, internal market theory, and life cycle theory.
The findings of this paper add to the literature on the motivations for conducting diversified M&As (Fang, 2008; Liu et al., 2009). We find that companies with poor performance are more inclined to participate in diversified M&As, which suggests that diversified M&As originate from the needs of the company. Our findings also enrich the research on whether diversified M&As can create value for shareholders (Berger and Ofek, 1999; Li and Zhu, 2006). Based on the recent development of the A-share M&A market, we find that the market reaction to diversified M&As and the improvements in the companies' fundamentals are superior to those of intra-industry M&As, and are mainly conducted by companies wishing to enter a new business. Moreover, we propose that diversified M&As can serve as a realistic means for enterprises to transform, and provide new evidence for the role of the capital market in servicing the real economy (Cheng et al., 2016; Pan et al., 2019).

Previous studies pay much attention to the impacts of corporate environmental information on firm value, the cost of capital, and firm risk. Nevertheless, there is little evidence regarding whether corporate environmental information affects the decision-making process of market intermediaries. Moreover, in China, environmental governance has attracted increasing attention from practitioners, the government, and the public. And they wish to figure out the mechanism of the relationship between environmental information and firm value. In response, this study investigates whether environmental information disclosures convey value information to investors via the conduit of rating agencies.
We have several reasons for predicting a positive association between environmental information transparency and corporate credit ratings. In general, transparent environmental information plays an important role in signaling superior environmental performance, which may be conducive to reducing litigation risks and avoiding regulations. Clearly, litigation risks and regulations are more likely to result in many uncertainties, such as fines, compensations, mandatory close, rectification, and administrative sanction, which may lead to a downward shift in the mean of expected cash flows and/or an increase in the variance of expected cash flows and thus may increase the risk that a firm cannot pay off debts. Moreover, according to the consistency theory, managers with environmental responsibility usually are honest and trustworthy and thus are less likely to conduct opportunistic behavior, which may increase agency costs. Accordingly, we predict that environmental information transparency is associated with an increase in the likelihood of upgrading corporate ratings.
To test above prediction, we construct an index to measure corporate environmental information transparency and hand-collect data from annual reports, CSR standalone reports or/and other sources such as corporate websites. We obtain data about corporate credit ratings from the China Stock Market Accounting Research (CSMAR) database. Data about ownership, financial performance, corporate characteristics, capital structure, and stock returns are also collected from CSMAR database. In this study, all continuous variables are winsorized at the top and bottom 1% of their distributions.
Using a sample of Chinese listed firms over the period of 2008-2015, we find that environmental information transparency is significantly associated with upgrading corporate credit ratings and environmental information affects rating decisions by conveying the information about idiosyncratic risk, earnings persistence, and earnings quality. Moreover, we find that the positive association between environmental information transparency and corporate credit ratings is more pronounced for firms with superior internal control (high-quality auditing) than for their counterparts. Above results are still valid with several robustness checks, including controlling for the endogeneity issue between environmental information transparency and corporate credit ratings by adopting two-stage instrumental variable regression method, firm-level fixed effects model, and propensity score matching method. In the additional tests, we show that environmental information transparency can reduce the cost of bond financing through the conduit of upgrading credit ratings and the effects of environmental information transparency on corporate credit ratings and the cost of bond financing are more pronounced for firms in polluting industries than for their counterparts.
Our study contributes the existing literature in several ways. First, this study adds to the extant literature about the determinates of credit ratings and provides an important reference for understanding the roles of environmental information in bond markets and how nonfinancial information influences investors' decision-making. Second, our study adds a novel insight to prior literature about economic consequences of environmental information disclosure. Third, we extend previous studies about the impacts of corporate governance on credit ratings by revealing a reinforcement effect between internal control (high-quality auditing) and environmental information transparency. Fourth, the existing literature about bond pricing can benefit from our findings by addressing how environmental information affects the cost of bond financing through credit ratings. Finally, our findings contribute to previous studies by showing the asymmetry effects of environmental information transparency on credit ratings and bond pricing between polluting and non-polluting industries.
This study has several implications. First, regulators should take actions to improve the laws and regulations about environmental information disclosure. Second, the government should consider the role of environmental information in capital markets to guide environmental conservation. Third, practitioners should take advantage of the reinforcement effect between environmental information disclosure and corporate governance to improve environmental governance. Finally, managers and investors should improve communications with market intermediaries.
Certainly, there exist several limitations in this study. First, environmental information transparency index is built on voluntary information disclosure, which may lead to sample selection bias. Second, this study covers the sample period of 2008-2015, and thus scholars can extend the sample period to further examine the validity of our findings. Finally, our findings are valid for listed companies. Scholars may provide additional evidence to address whether above findings still hold for non-listed companies.

Individual major shareholders (IMSs) are the natural shareholders in listed companies who hold a high proportion of shares but are not the actual controller or controlling shareholder of the company. People often regard IMSs and general minority shareholders as the same kind of investor. However, as IMSs hold a higher proportion of shares and a larger capital scale than general minority shareholders, they are more willing to spend time collecting information about the company's operation and supervising the behavior of the company's managers, rather than adopting the “free-rider” behavior of minority shareholders. Compared to institutional investors, they pay more attention to absolute returns than to short-term rankings of relative performance. Therefore, when asset prices overreact to negative information in the short term, their dominant strategy may be to hold shares to reduce short-term selling pressure. As Chinese institutional investors have developed recently and relatively slowly, IMSs have, for a long time, played an important role in the equity structure of listed companies, and they have important effects on asset price characteristics.
Based on data on China's A-share listed companies from the 2007 to 2016 period, this study investigates the relationship between IMSs' shareholdings and the risk of stock price crashes. Following Chen et al. (2001) and Kim et al. (2011a, 2011b), we construct two variables to measure a company's stock price crash risk in a specific year. The first measure is the negative conditional skewness, NCSKEW, calculated by taking the negative of the third central moment of the firm-specific weekly return scaled by the sample variance of firm-specific weekly return raised to 3/2. The second measure is the down-to-up volatility, DUVOL. In the first step, we calculate the standard deviations of firm-specific weekly returns during the up (down) weeks when the firm-specific weekly returns are above (below) the annual mean. DUVOL is defined as the log of the ratio of the standard deviation on down weeks to the standard deviation on up weeks. In this study, we regress these two variables on the shareholdings of a company's IMSs.
Our results are as follows. First, there is a significant negative correlation between IMS shareholdings and the future crash risk of stock prices. As the proportion of shares held by IMSs increase, the risk of stock price collapse decreases significantly. This conclusion remains valid after eliminating the shares held by the directors of the board, supervisors, and senior executives of the company, after endogenous treatment, and using several alternative statistical test methods. Second, the effect of IMSs' shareholding on the supervision of corporate management is not significant. Increases in the proportion of IMSs' shareholding has no significant impact on operating indicators that may affect the crash risk of stock price such as accrual earnings management, real earnings management, investment efficiency, or overinvestment of the company.Although IMSs' shareholding is positively related to management shareholding and management power, these two indicators do not significantly affect stock crash risk. Third, the influence of the IMSs on the stock price crash risk is mainly realized through strengthening the company's ownership balance mechanism. The mediating effect test shows that the ownership balance mechanism explains more than 50 percent of the effect of IMSs on crash risk.
The main contributions of this study are as follows: First, from the perspective of crash risk, this study examines the impact of IMSs, an important investment group in the stock market, on asset prices, and reveals their role as price “stabilizers.” This analysis helps us to fully understand the role of IMSs in China's stock market. Second, this study verifies the role of IMSs in corporate governance, that is, the role of IMSs in stabilizing the market by strengthening the company's ownership balance rather than supervising the managers. Third, from the perspective of shareholder structure, this study further enriches our understanding of stock price crash risk.
The IMSs are the kind of investors generated by a specific developmental stage in China's stock market. They play a unique role in the market, and will continue to exist for a long time. Therefore, their behavioral characteristics and effects on asset prices require careful study. This study shows that IMSs play an active role in reducing the crash risk of stock prices and stabilizing market prices. Future studies can explore the impact of IMSs on the stock market from other perspectives.

The National Equities Exchange and Quotations, which has held for more than 10 thousand innovative and developing companies, now gains its' indispensable position in the multilevel capital market in China since it was extended to a nationally OTC stock market in 2013. The newly built stock market, however, suffers from severe inadequacy of liquidity. To manage the heterogeneous companies efficiently and promote the liquidity condition of the NEEQ, the supervisor has designed a tiered system to divide the listed companies into different levels. The companies of the NEEQ are allocated into the basic tier and innovative tier according to criteria of profit, growth and market making. Any company who is qualified in the minimum requirements of one of the three criteria can choose to enter the innovative tier, otherwise it will remain in the basic tier. Whether the special trial of the microstructure of the NEEQ has addressed the dilemma of the liquidity remains to be evaluated.
This paper tries to assess the policy effects of the tiered system on the liquidity of the NEEQ by multivariate regression discontinuity designs. The specific financial indexes of each criteria can be regarded as three discontinuity points in the multivariate space. We identify the treatment effects of the three criteria by exploiting three different sharp RDD, respectively. The data of the listed companies in 2014 and 2015, according to which the trier system is operated for the first time, is used to select the experiment groups and control groups of each RDD. To guarantee that the companies can't manipulate their financial outcomes to reach the requirements of the innovative tier, we firstly examine the discontinuity of the assignment variables. We find that the assignment variables of the growth criterion are discontinuous around the critical point, indicating that the existence of the self-selection may lead the subsequent RDD invalid. Therefore, we can only identify the treatment effects of the profit and market making criteria. Our results are twofold. Firstly, the profit criterion, which emphasizes on the profitability of the companies, has improved about 74.1% of the Amihud index and 45.1% of the turnover of the companies who entered the innovative tier through this criterion. Secondly, the market making criterion, which emphasize on the market making scale of the companies, however, hasn't boost the liquidity of the companies on the innovative tier significantly. Our results remain robust after conducting the following robust checks (1) we change the window width of the assignment variables, (2) we run the polynomial regressions to avoid that we identify the nonlinear curve as a “jump”, (3) we run the nonparametric regressions to avoid that we set the parameters erroneously, and (4) we conduct a placebo test which is distinguished from the traditional univariate RDD in that our critical point is located in a space. We randomly extract 10000 points as the virtual critical points to repeat the RDD for 10000 times. The results are quite robust as the policy effects on most of the chosen points are insignificant, while significant around the true critical point. Why companies listed on the innovative tier through different criteria lead to a bifurcation in the liquidity prompting effect？ We suppose that the innovative tier enhances the requirements of the listed companies without releasing corresponding bonus, then failed to guide the expectation of the tiered system. Thus the liquidity prompting effect of companies on the innovative tier depends on the investor recognition. Compared to the profit criterion who selects the profitable companies, the market making criterion is more accessible, resuting in a low investor recognition. Moreover, as the tiered system and the market making system are two fundamental systems of the NEEQ, we further investigate the interaction effect of them. Specifically, the tiered system claims that any company who applies to list on the innovative tier since its' initial public offerings has to adopt market making transfer. We evaluate the moderating effect of the market making system on the tiered system by comparing the liquidity promoting effect of the negotiating-transferred companies and the market making ones. The empirical evidence indicates that the market making companies perform worse in liquidity than the negotiating ones. But within the market making companies, the number of the market makers is benefit for the liquidity.
These findings shade new lights on the tiered system and the moderating mechanism among institutes of the NEEQ. Firstly, enhancing the liquidity of the NEEQ leads a fundamental and pilot role of other institution innovations, however, equipped mechanisms are needed to strengthen the efficiency of the tiered system. Secondly, the supervisor should enhance the credibility of the reports of the companies of the tiered system such that the resources of the innovative tier are allocated competitively. Thirdly, the market making criterion is invalid regarding the liquidity of the companies, therefore, it has to be rectified in the next adjustment of the tier system of the NEEQ. Also, the requirements that companies must adopt market making transfer when entering the innovative tier should be abolished since the transaction methods are selected by the companies rationally. Finally, as for the marginal contribution to the identification method of our paper, some tentative techniques exploited by us may be heuristic for some regression discontinuity design based literature.

Substantial empirical evidence suggests that investor attention significantly influences asset prices (Da, Engelberg and Gao, 2011). Specifically, high levels of attention can induce strong price reactions (Barber, Odean and Zhu,2008; 2009). Conversely, low levels only bring under reaction to news (Dellavigna and Pollet, 2009); furthermore, prices only react to news that investors pay attention to (Huberman and Regev, 2001). As the economy develops, air pollution is becoming a severe problem in China, attracting the attention of both government and residents. The stock market now has a special class of PM2.5 concept stocks that are highly related to the prevention of air pollution. By definition at least, some of the products or techniques of such firms reduce or prevent air pollution. PM2.5 concept stocks have become quite popular recently among both the media and investors. Moreover, the prices of these stocks rise when air pollution worsens or attention to air pollution increases. Therefore, this study investigates how PM2.5 concept stocks react to investor attention on air pollution.
To answer this question, we collect daily data on the PM2.5 concept stocks from Wind, the China Security Market and Accounting Research (CSMAR), and the China Research Data Services (CNRDS) from January 4, 2013 to March 31, 2017 totaling 42,230 observations of 41 listed firms. We further introduce stock returns and turnover rates to measure stock performance. Following the literature, we use the Baidu search volume (Baidu Index) and media coverage of air pollution as measures of investor attention on air pollution, similar to a Google index. The Baidu index of air pollution is constructed from the sum of haze and PM2.5 levels.
After controlling for additional factors that may influence the stock performance, such as market return, lagged turnover rate, and quarterly versus annual disclosure periods, we further control for time fixed effects such as year, month, and weekday fixed effects to filter out seasonal effects. Our empirical results are as follows. First, investor attention on air pollution displays a significantly positive effect on the stock returns and turnover rate of PM2.5 concept stocks. All coefficients are significant at the 5% level, using the clustered standard error at firm level. On average, a 1% increase in the Baidu air pollution index increases the related stock return by 0.496%. Second, different types of news about PM2.5 concept stocks have different effects on stock returns. Good news raises returns, whereas bad news reduces them. We further design a sequence of robustness checks to confirm the empirical results. (1) To address possible endogeneity issues, we introduce a novel instrumental variable, Beijing air quality, to investigate the causal effects of investor attention on stock performance. (2) We provide evidence that investor attention on the PM2.5 concept stocks or air pollution does not affect the price of other stocks, such as financial stocks. (3) Investor attention has a larger effect on stocks with small rather than large market value.
To sum up, the main contributions of this paper are as follows. First, we investigate investor attention on a specific class of stocks highly correlated with environmental issues; second, we introduce an instrument to address the endogeneity between investor attention and stock prices; third, we explore the heterogeneity of the effect of investor attention on stocks with different characteristics. In addition, this study also suggests that the Internet plays an important role in transforming information. The findings of this paper may assist investors to construct proper trading strategies to pursue higher profits.