Cross-border capital flows have a huge effect on the boom-bust cycles of an open economy. Since the 1980s, the financial liberalization of many emerging market economies has attracted large capital inflows and increased the prosperity of these countries. However, sharp fluctuations and reversals of international capital flows have also undermined their financial stability, triggering currency crises, financial market turbulence, and even long-term recession. These crises have shown that China must manage the risk involved in the international capital flows that result from financial opening-up.
   To reduce the risks from cross-border capital flows, it is important to know what drives them. Existing studies distinguish between domestic and international factors based on Pull Factor and Push Factor analysis. This analytical framework has been adopted by many studies, which have provided abundant empirical evidence. As the flow of capital is generally determined by the economic and financial situation and the return on investment in both the home country and abroad, there is a trade-off in terms of opportunity cost between potential benefits from the home country and returns from overseas markets. Therefore, understanding cross-border capital flows means considering the difference between domestic and international economic and financial factors, rather than isolating them.
   In many prior studies, changes in economic and financial indicators are mainly used to measure the economic and financial cycle. For example, the change of GDP growth rate is often used as an economic cycle indicator. Interest rates, exchange rates, asset prices, and the level of market risk are considered manifestations of the financial cycle. Prior studies have also provided evidence of a significant relationship between internal and external factors and cross-border capital flows. Currently, China is accelerating the opening up of its financial markets, and the interaction between China and the world has increased dramatically. Numerous financial indicators are changing more rapidly under the influence of internal and external factors. Therefore, for China, the impact of internal and external financial cycles on cross-border capital flows is particularly important.
   This study develops a model to shed light on the impacts of these differences on capital flows and empirically tests it using quarterly data between 1998Q1 and 2018Q1 for China and the U.S. The model is developed based on linear regression, the SVAR model, and the time-varying parameter VAR method, and is used to carry out a range of empirical tests and robustness analyses.
   A number of findings emerge. (1) The fluctuations of China's capital flows are mainly driven by changes in short-term capital flows, especially from other investment items (currency and deposits, loans, trade credit, etc.). Capital inflows tend to be more volatile than outflows. (2) The differences between domestic and foreign factors, including interest rates, exchange rate changes, asset price changes (i.e. stock price changes and real estate price changes), and risk factors, have significant effects on China's capital flows. (3) From the perspective of the transmission path, these differential factors have a more significant impact on capital inflow than outflow, and the net inflows are mostly affected by inflows. (4) The impact of the interest rate spread on capital flows has weakened in recent years, but the influences of the differences of exchange rate change and asset price change have become stronger.
   These results suggest that Chinese authorities should pay more attention to other investment items to prevent the risk of capital flow fluctuations. Moreover, because the effect of the interest rate spread weakens over time, it is possible to increase the independence of China's monetary policy. In terms of promoting financial market reform and opening up, Chinese authorities should pay more attention to exchange rate and asset price fluctuations to prevent potential resonance shocks to capital flows.
   We contribute to the literature in several ways. (1) We analyze international capital flows from the perspective of financial cycle discrepancy. (2) We identify and analyze the time-varying impacts of financial cycle discrepancy and international capital flows. (3) We identify the most volatile sectors of China's capital flows and analyze the driving force behind fluctuations in capital flows.

In 2005, China launched an RMB exchange rate reform. The previous fixed exchange rate system was replaced with a managed floating system. The RMB exchange rate consequently began to experience volatility. In 2015, the People's Bank of China modified the pricing mechanism to a daily fixed price. Since then, there have been sharp fluctuations in the exchange rate, which have triggered a large-scale capital outflow. After several years of rapid growth, China has shifted from being a major destination of foreign investment to one of the world's leading foreign investors. When enterprises engage in foreign investment, they are involved in currency exchange. Thus, fluctuations in a country's exchange rate will inevitably impact enterprises' foreign investment decisions. Given the increasing fluctuation of the RMB exchange rate, it is necessary to study the influence of this trend on the outward foreign direct investment (OFDI) decisions of Chinese enterprises.
   Based on the China Global Investment Tracker Database compiled by the Heritage Foundation from 2005 to 2017, we study the impact of RMB exchange rate fluctuations on Chinese enterprises' OFDI. We also draw on the China Listed Enterprises Database managed by Ifind, the IMF International Financial Statistics, the World Bank's World Development Indicators and Worldwide Governance Indicators. Based on these measures of exchange rate fluctuation, we use linear probability model, probit, and logit methods to estimate the impact of exchange rate fluctuations on the probability of Chinese firms' engaging in outward foreign investment. We use a tobit model to estimate the impact of exchange rate fluctuations on the volume of Chinese firms' OFDI. We also apply a Heckman two-stage selection model to reduce sample selection bias. Our study shows that fluctuations in the RMB exchange rate and increased uncertainty significantly depress the probability of Chinese enterprises' OFDI and the volume of investment. Next, we take into account endogeneity issues, rare event bias, sample selection bias, and different exchange rate fluctuation indicators. In addition, based on manually collected corporate annual report data, we find that the hedging behavior of enterprises in the foreign exchange market can help them avoid exchange rate risks, which weakens the suppression effect of exchange rate fluctuations on investment. Further research shows that exchange rate fluctuations have heterogeneous effects on companies that invest in different industries and countries and use different investment methods. This is the result of several unique characteristics of China's foreign investment.
   The contributions of this paper are as follows. First, it provides micro-level evidence of the impact of exchange rate changes on Chinese enterprises' outward investment, enriches the literature on the factors affecting Chinese OFDI, and expands research on the impact of exchange rates on firms' internationalization decisions. Previous studies focus on the relationship between exchange rates and firms' exports; few studies analyze exchange rates and firms' OFDI from a micro perspective. This article offers a preliminary exploration of this topic. Second, the data used in this article have some unique features. The China Global Investment Tracker Database includes firms' OFDI volume, and can thus be used to study the impact of exchange rate changes on companies' investment decisions and investment volume. This database also traces each investment to its final destination, overcoming the problem of returning investments that could not be avoided with the previous OFDI statistical database. Whereas the previous literature mostly focuses on Chinese manufacturing enterprises' OFDI, the dataset used in our study includes enterprises in various industries, such as finance, real estate, energy, transportation, and manufacturing. This makes it more representative and comprehensive. Third, the manually collected annual reports can truly reflect companies' risk management of exchange rates. Our study finds that companies reduce exchange rate risk by hedging in the FX derivative market, which weakens the restraining effect of exchange rate fluctuations on corporate investment.
   In future research, it will be important to establish a theoretical model based on the characteristics of Chinese firms to explain the impact of exchange rate fluctuations on their OFDI behavior. Future studies could also examine the impact of exchange rate expectations on Chinese companies' overseas investment.

China's economy is transitioning from high-speed growth to high-quality development, and a key issue is how to best facilitate this transition. Optimizing spatial layout, agglomerating factors, and building advanced urban agglomerations can ensure high-quality development. Under the modern economic system, the operation of the financial system has clear regional characteristics, and the coordinated development of regional finance is critical to the optimal allocation of resources. Financial development theories increasingly emphasize the influence of formal and informal institutional factors, and provide a new perspective on the coordinated development of regional finance in relation to institutional arrangements and social capital allocation.
   This paper uses data on the dialects, finances, economies, and urban agglomerations of 338 cities from 2001 to 2015 to examine the impact of formal institutions (urban agglomeration policies) and informal institutions (culture) on the coordinated development of regional finance. It finds that urban agglomeration policies effectively improve the quality of regional financial development. Such policies improve the overall level of financial development; they also bridge gaps in financial development among different regions and result in balanced development.
   As formal and informal institutions evolve together, the formal institutions may change or disappear, but informal institutions (especially culture) may be more lasting. Therefore, this paper further explores the role of local culture (dialect) in the relationship between urban agglomeration policies and coordinated development of regional finance. In general, dialect consistency can assist urban agglomeration policies in coordinating regional financial development. More specifically, dialect consistency benefits financial development in two ways. Compared with cities that are not in urban agglomerations, cities in the same urban agglomeration with the same dialect have better coordinated financial development. In addition, dialect consistency can weaken the market segmentation effect of urban agglomeration policies at the boundaries of urban agglomerations. Thus, informal institutions play an important role in the relationship between formal institutions and financial development. The robustness of these findings is confirmed by multiple tests, including a placebo test, change of sample period, and substitution of independent or dependent variables.
   In terms of mechanisms, this paper starts with the function of strengthening communication and enhancing mutual trust due to a common dialect, and deconstructs its mechanism. Due to the popularization of Mandarin, the communicative function of dialect has been somewhat weakened, but dialects still play a role in the relationship between urban agglomeration policies and the coordinated development of regional finance. Dialect consistency can reduce communication costs, improve trust, and promote the development of finance. This conclusion is also valid after considering consanguinity among individuals.
   The contributions of this paper are as follows. First, it establishes a framework to analyze the impact of urban agglomeration policy on regional finance from the perspectives of overall financial development and regional disparity, avoiding the policy biases that may result from a single perspective. Second, as the role of informal institutions, especially regional culture, is unique and prolonged, and in some ways exceeds that of formal institutions, this paper investigates how dialects influence urban agglomeration policy and the coordinated development of regional finance.
   Finally, this paper proposes the following policy suggestions. First, the creation of urban agglomerations and development policies should consider not only geographical distance but also cultural distance, as represented by dialects. The closer the culture is, the smaller the urban market segmentation. Dialect consistency strengthens the positive impact of urban agglomeration policies on the coordinated development of regional finance. Second, it is urgently necessary to establish a more sophisticated credit system. The results of this study show that dialect consistency enhances the impact of urban agglomeration policies on financial development through the mechanism of identity-based trust. The higher the credit level of a society, the better its economy.

Foreign direct investment (FDI) that involves advanced technologies plays an important role in the global diffusion of technology and can contribute to the rapid development of the host country's economy. Vigorously promoting FDI is an important strategic decision for developing countries and regions, as it can enhance their core competitiveness in technology. The financing constraints that multinational companies may face in a host country's financial market are an important factor in their investment decisions. Most studies of FDI location selection focus on a certain country or province, and discuss the differences in the infrastructures of potential host countries. Few studies have examined the impact of local financial institutions, especially the structure of the banking industry, on FDI at the city level. Since its reform and opening up policy in 1978, the Chinese government has implemented a series of financial system reforms aimed at reducing friction in financial markets and alleviating the huge financing constraints faced by enterprises. This study uses a sample of city commercial banks to study the impact of local financial development on FDI location selection. The aim is to create a reference that will improve the regional distribution of FDI and alleviate imbalances in local development in China.
   The theoretical analysis shows that establishing city commercial banks can attract FDI through two channels: directly, by expanding the external financing channels of the enterprise; and indirectly, by supporting the city's overall economic development. Accordingly, we collect the data on 295 prefecture-level cities in China and 184 city commercial banks established between 1990 and 2015. We take the differences in the establishment dates of city commercial banks in different regions as a “quasi-natural experiment” and use the difference-in-differences (DID) method to study the relation between local financial development and FDI location selection. In addition, we combine these data with data on Chinese industrial enterprises from the 1998 to 2008 period to help understand the mechanism underlying this relation.
   The results suggest that the establishment of city commercial banks significantly promotes FDI inflows. This conclusion remains robust after a series of robustness analyses, such as changing the statistical level, excluding outliers, placebo tests, and verification with regional and endogenous analyses using propensity score matching. Using data from Chinese industrial enterprises, we confirm that the establishment of city commercial banks eases corporate financing constraints by improving the likelihood of local enterprises obtaining loans from banks, which in turn affects the location of FDI. Therefore, local small and medium-sized financial institutions and private financial enterprises should be encouraged and supported. Local governments should pay attention to the development of urban financial institutions while also improving the regional infrastructure. Further analysis of the merger and expansion of city commercial banks shows that the expansion of city commercial banks' business scale has no noticeable effect on FDI inflows to the territories or other cities. However, the positive effect of capital scale expansion is obvious. In other words, a reasonable financial structure is more attractive to FDI than a blind expansion in the number of local financial institutions, which also proves that the position of city commercial banks in the banking structure inevitably affects the location choice of FDI.
   Our contributions can be summarized as follows. First, we take urban commercial banks as the specific object of financial development and focus on the impact of local financial development on regional FDI inflows. We use the DID method to largely overcome the endogenous problem. Second, we comprehensively analyze the impact of the scale expansion behavior of city commercial banks on FDI inflows from a macro perspective, enriching the single micro-financial perspective adopted in previous studies, and provide a new theoretical basis for evaluating policies on city commercial bank operations and the adjustment of the banking industry structure. Third, we confirm that corporate financing constraints hinder foreign investment, which suggests that local governments could alleviate regional development imbalances by further leveraging the advantages of local financial institutions, and thus improving service efficiency, expanding foreign capital markets, and introducing advanced technologies.

House prices in China are rapidly increasing.The negative impacts of high house prices on economic and social development have been well documented. Many studies have focused on the consequences of this trend for the real economy, consumption, enterprise innovation, financial risks, investment, and so forth. At the same time, China is transforming itself from an economy based on a large population to one based on human capital, which is to say from a factor-driven to an innovation-driven economy. Human capital has become one of the most important sources of economic and social development. College graduates are an important element of high-skilled human capital, and are thus essential for urban innovation. Due to the rapid rise in house prices, an increasing number of college graduates are choosing to leave first-tier cities. Thus, it is important to ask whether the increase in house prices has triggered an outflow of talent, especially high-skilled talent.
   This paper uses representative national survey data on college students from 2010 to 2015 to study the impact of increasing house prices on the outflow of college graduates. We further use a measure of per capita land transfer area as an instrumental variable for estimation. Our findings are as follows. First, a substantial rise in house prices significantly increases the probability that college graduates will choose to leave their current city for work. Second, regarding magnitude, if house prices increaseby 1,000 yuan, the probability that college students will choose to leave increases by 3.14%; this estimated coefficient indicates that the outflow of college graduates resulting from rising houses prices increased by 21.5% between 2010 and 2015. Third, heterogeneity analysis suggests that the effect is larger for students with less-advantaged educational and family backgrounds, and for those who study in second-and third-tier cities.Government support for emerging industries can, to some extent, reduce this crowding-out effect. Finally, we find that the substantial increase in house prices affects graduates' employment choices; specifically, more students tend to choose real estate and finance-related industries, and fewer choose fundamental industries.
   Our study makes two contributions to the literature. First, although a large strand of the literature examines the socioeconomic consequences of an increase in house prices, most previous studies focus on the direct impact of high house prices on aspects of economic and social development, such as consumption, investment, and firm performance. In contrast, few studies examine the impact of house prices on the outflow of human capital, especially high-skilled human capital. By focusing on college graduates, we propose an important channel through which the increase in house prices affects regional economic development.Second, this paper contributes to the literature on the determinants of human capital immigration. Several studies use data from other countries, such as the U.S., and explore determinants such as the nationwide economic situation and labor market demand. This paper provides new evidence from the perspective of house prices in China.
   Our findings also have three policy implications. First, our work confirms and quantifies the impact of high house prices on the outflow of high-skilled human capital resources. This provides a better understanding of the socioeconomic cost of excessive house prices. Second,the results of this study point to an important determinant of the flow of high-skilled human capital, which has become one of the most important sources of urban development. The unrestrained rise in house prices significantly increases living costs, which include the cost of housing at the present stage and the cost of buying a house in the future. Governments should consider relevant policies, such as providing public housing,“talent apartments,” and rental housing services, and regulating the rental housing market. Third, our instrumental variable regression shows that a decrease in land supply would significantly increase house prices and further increase the outflow of high-skilled talent. This suggests that to reduce the negative impact of house prices on the outflow of human capital, the government should reduce the distortion of house prices caused by land supply,ensure more flexible land management, and offer benefits for enhancing regional development.

With the development of the international division of labor from “intra-industry trade” to “intra-product trade,” it has become difficult for enterprises to keep abreastof all areas. Collaborative innovation networks can promote complementary advantages and resource coordination between enterprises and research institutions, thereby enhancing enterprises' export performance. Moreover, cooperative R&D among enterprises, universities, and research institutions is the micro basis of the implementation of a national collaborative innovation strategy. The formation of an informal cooperation network among innovation subjects can promote the integrated development of science and technology, and ensure that it is adapted to increase productivity.
   In this paper, we analyze the impact of collaborative innovation on the exports of enterprises by using the theory of enterprise heterogeneity. Based on joint patent data, we construct the collaborative innovation network of China from 1999 to 2007, and analyze its topological characteristics. We also empirically test the impact of the role and position of enterprises in the collaborative innovation network on their export performance, and use instrumental variables to avoid possible endogeneity problems.
   The analysis of network structure shows that Chinese universities and research institutions play the important roles of “bridge” and “hub” in the collaborative innovation network.Collaborative innovation occurs most frequently among enterprises, followed by collaborative innovation between research institutions and enterprises;collaborative innovation among research institutions occurs least often. The proportion of collaborative innovation between research institutions and enterprises is gradually increasing. Through empirical analysis, we find that enterprises that engage in collaborative innovation have better export performance than those who do not. Independent R&D and collaborative innovation both improve the export performance of enterprises, and enterprises in the core position of the collaborative innovation network have a larger market share. After controlling for years and enterprises,we find that the export volume of enterprises increased by 0.9996% due to collaborative innovation.Further analysis shows that the “research institution-enterprise” model of collaborative innovation has no significant effect on the export performance of enterprises, while the “enterprise-enterprise” model significantly promotes enterprises' export performance. Collaborative innovation has a significantly positive effect on the markup of enterprises, and has a stronger effect on the promotion of export enterprises. Four types of collaborative innovation significantly promote the exports of enterprises, but the impact of collaborative innovation on design type is relatively small.Lastly, a mechanism test shows that collaborative innovation mainly promotes exports by improving enterprises' production technology. Although it increases the input cost of enterprises to a certain extent, it has little impact on their exports, and collaborative innovation plays a leading role in promoting enterprises' technological advances.
   This paper attempts to identify a feasible path for implementing China's innovation strategy and promoting enterprises' export performance from the collaborative innovation network perspective. The government should encourage core enterprises and research institutions in the collaborative innovation network to play the roles of technology leader and backbone, and establish “bridges” and “ties” among the main entities in the network. It is necessary to encourage export enterprises to shift from performance competition to efficiency competition, encourage innovation among research institutions and enterprises, and improve the efficiency with which scientific advances are converted into productivity.
   Overall, this paper enriches the literature in three ways. First, it identifies an extensive collaborative innovation network based on a large sample of 3,114,809 joint patent applications covering all industries in China. Second, it explains the internal mechanism of the formation of a wide range of collaborative innovation relationships among enterprises, based on the theory of enterprise heterogeneity, and discusses the impact of enterprises' position in the collaborative innovation network on their export performance.Lastly, it is one of the first studies to empirically examine the impact of collaborative innovation networks on the export performance of enterprises.

Due to the dire impact of the financial crisis and mounting downward economic pressure, Chinese academics and practitioners have recently shown great interest in corporate default, as it is among the most disruptive events in the life of a corporation. However, few studies have examined whether labor markets affect the likelihood of corporate default. Thus, we study the effect of labor protection on default risk.
   Labor protection can affect default risk for a number of reasons. On the one hand, it may affect firms' likelihood of default via the cost effect or the bargaining effect. Labor protection can increase labor costs, which increase firms' operation leverage. Consequently, firms' default risk may increase with greater operational pressure. On the other hand, firms with a higher likelihood of default tend to fire employees or cut off their welfare to lower costs. Thus, rational employees ask for higher wage premiums to hedge the risk of being fired or receiving pay cuts. To pay lower wage premiums, firms tend to keep lower debt ratios to alleviate employees' concerns.However, with the improvement of labor protection, they would increase debt ratios to capture a larger share of the tax benefit of debt. Consequently, the increase in debt increases the default risk. In general, theoretically, labor protection may increase the likelihood of default. However, the channel through which labor protection affects default risk still requires empirical examination.
   In this paper, we use the Social Insurance Law issued in 2011 as an exogenous shock to investigate the relationship between labor protection and corporate default risk. We use the Social Insurance Law as the exogenous shock for two reasons. First, the issue of the Social Insurance Law is exogenous for listed firms in China. Furthermore, it requires firms to pay five social insurances for employees. Thus, social insurance fees paid by corporations can be regarded as quasi-tax payments, ensuring that the cost of social insurance is constantly reflected in firms' labor costs. Therefore, the Social Insurance Law increases labor costs significantly. Second, no other confounding events or laws affected labor costs and default risk in 2011, which helps build the casual relationship between labor protection and default risk.
   Following the literature on the real effect of labor protection, we use a standard difference-in-differences approach to investigate the relationship between labor protection and the likelihood of corporate default. Our results show that the default risk increases by 1.5%, which is significant at the 1% level, in labor-intensive firms (i.e., the treatment firms) compared with non-labor-intensive firms (i.e., the control firms) after the implementation of the Social Insurance Law. We find consistent results when using the ex-post default risk (Violate) and the probability of being an ST firm (ST) as proxies for the likelihood of default. The mechanism test shows that the cost effect caused by labor protection mainly affects corporate default risk by increasing firms' operational leverage. Furthermore, the cross-sectional tests demonstrate that the positive relationship between labor protection and default risk is more pronounced for state-owned firms, more financially constrained firms, lower transparency firms, and innovative firms.
   We make multiple contributions. First, we contribute to the literature on the real effects of labor protection laws. The literature has found the Labor Contract Law in China to have either positive effects (e.g., promoting employment and innovation) or negative effects (e.g., reducing business flexibility and operating efficiency). We provide evidence that the Social Insurance Law increases firms' likelihood of default by boosting labor costs. Thus, our results provide new empirical evidence for evaluating the policy consequences of the Social Insurance Law. Second, we extend the research investigating the factors that affect corporate default risk. We contribute to this stream of literature by providing evidence that labor markets also affect firms' likelihood of default via increased labor costs. Finally, our results indicate that the government should lower the social insurance rate if it conducts more stringent social insurance fee collection arrangements. Otherwise, it may increase corporations' default risk by boosting labor costs.Our research also provides some insights to governments' tax and social insurance fee reduction schemes during the period of the novel coronavirus pneumonia outbreak.

China's P2P (peer-to-peer) online lending industry has experienced numerous twists and turns in its development process, during which there have been several serious platform crises that have hindered the healthy development of the industry. Default risk has become an unavoidable problem, resulting in the loss of capital allocation efficiency in the industry. Previous studies have focused on active defaults, in which borrowers intentionally or strategically default despite having the ability to repay; passive defaults have been discussed less frequently. On many P2P platforms, borrowers can independently set borrowing rates in advance and make loan orders. Due to their relatively weak bargaining skills, borrowers are likely to produce pricing deviation, causing an unexpected rise of repayment pressure. When the pressure exceeds the borrower's ability, the borrower will have to default. This paper argues that even if there is no active default intention, excessive pricing deviation will often break the borrower's income balance and lead to passive default. We further propose that the borrower, as the party with more information, will try to reduce pricing deviation through information whitewashing and reverse his/her inferior position to obtain a larger bargaining surplus. We therefore study the characteristics of this behavior and investors' reaction to it.
   In the theoretical part, based on behavior asset pricing theory and the pricing mechanism of Renrendai.com, this paper explores the reasons for pricing deviation. In an attempt to obtain a lower borrowing rate, borrowers may use unverifiable soft information; consequently, this paper discusses information whitewashing. Considering reputation cost and income balance, this paper also analyzes the relationship between pricing deviation and default risk.
   In the empirical part, with data from Renrendai.com from 2014 to 2018, this paper studies the factors influencing the pricing deviation of peer-to-peer borrowers and the relationship between pricing deviation and passive default risk. Pricing deviation is obtained through a stochastic frontier approach by dividing interest rate into an efficient part and an inefficient part. The paper finds substantial pricing deviation among borrowers, which varies between different groups. Borrowers' whitewashing fails to reduce pricing bias and may even backfire. Furthermore, when the borrower's reputation cost is higher than the lending rate, defaults are mainly passive. Even if the borrower does not actively intend to default, the greater the pricing deviation, the tighter the borrower's remaining income, and the greater the likelihood that the number of overdue payments and the proportion of debt owed will increase, which leads to greater risk of passive default.
   Based on these empirical results, this paper makes several suggestions. First, the rate pricing mechanism should be improved, which means that rate flexibility should be increased and P2P interest rate marketization should be promoted. Second, information disclosure should be strengthened and information standardization should be implemented. Finally, it is necessary to improve default risk control, understand borrowers' motivations, reduce the probability of passive default, and improve the efficiency of capital allocation.
   Our study contributes to the literature in the following ways. First, the cost stochastic frontier (SFA) is used to construct the pricing deviation index. In contrast to the literature, this construction method comprehensively considers loan availability and the post-loan default risk of a loan order, which classifies the optimal interest rate and pricing deviation more objectively and reasonably. Second, focusing on the limits of platform information verification, this paper investigates the information whitewashing behavior of borrowers and the reaction of investors, and it reveals the information transmission and bargaining mechanism of both parties on the platform. Third, it outlines the reasons for borrowers' passive default, examines the relationship between pricing deviation and passive default, and enriches the risk control strategy of P2P platforms.

The scale of entrusted investment among China's listed firms has grown rapidly over the past decade, adding up to trillions of RMB. However, many listed firms use money raised by initial public offerings, seasoned equity offerings, and issued bonds to buy entrusted investments, provoking fierce criticism from the media and heavy attention from supervisory agencies. As a result, the China Securities Regulatory Commission has intensified disclosure regulations on entrusted investments by modifying policies, disciplining listed firms to focus on their core business, and thus effectively stopping them being distracted from their intended purpose. Nonetheless, most firms claim in their announcements that the purpose of buying entrusted investments is to increase the efficient use of idle funds. In this case, what is China's listed firms' real purpose in buying such a huge amount of entrusted investments？ Is it simply good financial management, or a sign that firms are distracted from their intended purpose？ Unfortunately, these questions have been underexplored.
   This paper addresses these questions from the perspective of corporate innovation, and develops an agency problem hypothesis and financial management hypothesis to explain whether and how buying entrusted investments affects corporate innovation. Using detailed data on entrusted investments and patents from 2008 to 2017, this paper empirically tests two hypotheses. The main findings are threefold. First, innovation quality decreases significantly as the amount of entrusted investment and the contribution of its returns to income increase, while innovation quantity does not. Second, the impacts of entrusted investments from commercial banks and non-banks on innovation quality are both negative, while their impacts on innovation quantity are opposites. These conflicting impacts may offset each other, explaining the insignificant effect overall. Lastly, listed firms prefer to engage in exploitative innovation rather than exploratory innovation as entrusted investments increase. In particular, innovations of firms that buy more entrusted investments from banks are more opportunistic, while innovations of firms that buy more from non-banks are more passive.
   This paper contributes to the literature in three ways. First, although the extant literature has focused on the characteristics, motivations, risks, and agency problems of listed firms' entrusted investment in China since roughly 2000 (Chen and Ding, 2002, He and Wang, 2005), few studies have explored the determinants of recent entrusted investment and its impact on earnings volatility (Sun et al., 2016; Hu et al.,2019). Thus this paper extends the literature by analyzing entrusted investment's impact on corporate innovation.
   Second, the literature has found that listed firms' financialization through investing in bonds, equities, derivatives, real estate, and entrusted loans can affect innovation input and output (Yu and Li, 2016; Du et al., 2017; Liu, 2017), yet it ignores the important impact of financialization through other entrusted investments that are recorded in the accounts of other current assets. This paper fills this gap by investigating the impact of buying entrusted investments from commercial banks and trust companies, enriching the literature on the economic effect of listed firms' financialization.
   Lastly, due to the unavailability of detailed data on patents in China, most of the existing literature has studied corporate innovation in terms of R&D expenditures and number of patents (Wen and Feng, 2012; Feng et al., 2017;Zhang et al.,2019) rather than innovation quality and strategy (Li and Zheng, 2016; Hao et al., 2018). This paper examines the impacts of entrusted investment on innovation quality and on exploratory versus exploitative innovation, enriching the literature on innovation strategy.
   This paper's findings will be helpful for supervisory agencies aiming to improve entrusted investment regulations.Many firms successfully raise money and then buy entrusted investments rather than invest in the planned projects. Such financing is vulnerable to expropriation, and it suggests that listed firms lack an effective investment plan. In contrast, many small and mid-sized firms that are prospective find it difficult to raise money to facilitate innovation. As a result, attempts to regulate entrusted investment should also consider how the capital market can effectively facilitate corporate innovation.

Mergers and acquisitions are among the largest risky investments that a company will ever undertake. In recent years, the number and scale of mergers and acquisitions in China have been growing relatively quickly. Although previous studies of corporate finance have examined a wide range of determinants of firms' M&A decisions, few have explored the role of executive compensation incentives in the mergers and acquisitions process. At the end of 2005, China's “Administrative Measures on Equity Incentives for Listed Companies (Trial)” was promulgated. Over time, the strength of stock option incentives has increased significantly for listed companies in China. Stock option incentives have gradually become a normal incentive mechanism. How the implementation of a stock option incentive system over a ten-year period has affected the M&A behavior of listed companies in China is still an open question. Do stock option incentives that align managers' interests with those of shareholders induce managers to undertake value-enhancing mergers and acquisitions？ How do stock option incentives influence these M&A decisions？ To answer these questions, our study first empirically examines the impact of stock option incentives on firms' mergers and acquisitions behaviors, and then explores how the characteristics of executives and the nature of property rights affect the relationship between stock option incentives and firms' mergers and acquisitions behaviors.
   The theoretical explanations for the effect of stock option incentives on firms' M&A behaviors are based on agency theory and risk-taking theory. First, stock option incentives that link the personal wealth of managers to the firm's stock price are an important way to unify the interests of shareholders and managers. In this way, stock option incentives can alleviate the agency problems in the M&A process, and thus have a positive impact on a firm's M&A decision. Second, the sensitivity of stock option value and stock price volatility will enhance the risk preferences of managers. Hence, by increasing risk tolerance, stock option incentives may generate a positive impact on firms' M&A behaviors.
   Using panel data of Chinese listed firms from the 2006 to 2015 period, we empirically examine the effect of stock option incentives on firms' M&A behaviors. Our results show that executive stock option incentives improve the M&A tendency and M&A scale of listed companies in China. Relieving agency problems and increasing risk-taking are potential channels for these effects. We show that the heterogeneity of managers' specific characteristics moderates the effects of stock option incentives. The positive effect of stock option incentives on M&A is more pronounced for older managers, longer tenure managers, and managers with lower relative compensation. In addition, the impact of stock option incentives is more prominent in non-state-owned enterprises. Finally, our study finds that stock option incentives also enhance the financial performance of mergers and acquisitions.
   The three contributions of this study are as follows. First, few studies have explored the impact of compensation incentive mechanisms on the M&A behaviors of Chinese firms. Our study reveals how stock option incentives play a role in Chinese firms' M&A activities and therefore provides new empirical evidence for the determinants of firms' M&A decisions. Second, this study enriches and expands the literature on the economic consequences of stock option incentives. The findings stress the positive role of stock option incentives from the perspective of firms' M&A behaviors. Third, this study introduces the heterogeneity of incentive objects and firm characteristics to the framework for investigating the impact of stock option incentives on firms' M&A behaviors, and thus reveals the heterogeneous impact of stock option incentives.
   In addition, this study has important policy implications. First, our findings stress the positive role of stock option incentives in mobilizing executives and improving corporate governance, which verifies the importance of establishing and improving the option incentive mechanism in China. Second, we find that the effect of stock option incentives varies with managers' specific characteristics, which suggests that to optimize the incentive effect, stock options incentives should be set according to managers' characteristics. Finally, our study finds that the impact of stock option incentives on the M&A behaviors of state-owned enterprises is not obvious, which indicates the importance of improving the incentive mechanisms for state-owned enterprises.

Can pre-announcement reduce the information advantage of insider trading？ This question has been discussed deeply in analytical research. In 2000, Fried proposed that pre-announcement can effectively reduce the profitability of insider trading, and as a regulatory method, it has the benefit of lower implementation costs. Subsequently, several papers used theoretical models to show that pre-announcement reduces the probability of insider trading by reducing insiders' information advantages (Huddart et al., 2000; Lenkey, 2014). However, there is no direct empirical evidence to answer this question, as few countries have issued regulations requiring pre-announcement of insider trading.
   The “New Regulation of Insider Selling”, implemented by the China Securities Regulatory Commission in May 2017, provides a unique study setting for the empirical test of this question. The new regulation requires an insider to disclose the selling plan 15 days before the first sale of shares. The pre-announcement should include but is not limited to the number, source, time interval, type, price interval, and reasons for the selling of the shares. The new regulation also requires that the selling period of each pre-announcement should not exceed six months, the progress of the insider selling should be disclosed when more than half of the shares are sold or the selling time is more than half over, and the specific selling condition should be disclosed within two trading days after the implementation of the selling plan or the expiration of the disclosed selling period.
   We focus on the selling behavior of directors, supervisors, and senior managers who sell their company's stock in the secondary market as disclosed by the Shenzhen and Shanghai Stock Exchanges from June 1, 2016, to April 25, 2018. Our sample includes 3,792 observations before the new regulation (June 1, 2016-May 26, 2017) and 2,522 observations after the new regulation (May 27, 2017-April 25, 2018). By using the event study method, we study insider selling before and after the implementation of the “New Regulation”, and examine whether pre-announcement of the selling plan weakens insiders' information advantage.
   The empirical results show that the short-term abnormal return of insider selling after the implementation of the new regulation is significantly lower than before, which indicates that pre-announcement inhibits the timing advantage of insider trading. Further research shows that pre-announcement reduces insider selling's profitability more strongly when the information quality is poor, the degree of marketization is low, the growth opportunity is high, the scale of insider selling is large, or the interval between the pre-announcement date and insider selling date is short.
   The contributions of this paper are as follows. First, by taking advantage of the unique research background of China's “New Regulation of Insider Selling”, it provides empirical evidence on the regulatory effect of pre-announcement on insider trading, which strongly supports and expands the existing theory. Second, unlike previous studies, which focused directly on the profitability of insider trading, this paper examines the weakening effect of pre-announcement on the profitability of insider trading and provides indirect evidence that insiders gain stock returns by using their information advantage. This result provides a useful supplement to the literature. Finally, by examining the effect of the “New Regulation of Insider Selling” on the trading of insiders with different characteristics, the conclusions of this study will help market regulators evaluate the effectiveness of their policies and further improve the efficiency of the capital market.