Since the severe global financial crisis in 2008, macro-prudential policies have resurged, while the use of monetary policy to prevent financial imbalances and systemic risks has been widely criticized. As a result, a series of macro-prudential policies have been introduced in many countries. China uses a two-pillar adjustment framework involving both monetary and macro-prudential policy. In October 2017, the report of the 19th National Congress of the Communist Party of China identified the need to “improve the framework of regulation underpinned by monetary policy and macro-prudential policy… to forestall systemic financial risks.” The two-pillar adjustment framework is expected to maintain financial stability. However, how well do monetary policy and macro-prudential policy cooperate under the two-pillar adjustment framework to better preserve financial stability？ How can monetary policy and macro-prudential policy cooperate better in different economic environments and with different policy objectives？ While many studies investigate the effect of either monetary policy or macro-prudential policy, few studies focus on the coordination between these two types of policies. Despite several papers investigating these questions theoretically, there is still no consensus and there is a lack of empirical evidence, especially at the micro level. To address this gap, we investigate empirically the micro-stabilization effect of monetary policy and macro-prudential policy under the two-pillar adjustment framework at both the bank level and the firm level.
Our empirical results using data on China's banks and firms from 2009 to 2018 show that the monetary policy rate is negatively related to bank risk taking but that macro-prudential policy can weaken the transmission effect of monetary policy's bank risk taking channel and restrict excessive risk taking of banks under easy monetary policy. Firms have an incentive to improve their debt ratio under easy monetary policy, but this effect can be effectively restrained by macro-prudential policy. Macro-prudential policy can reduce firms' dependence on bank loans, forcing firms to optimize their debt structure. The cooperation between monetary policy and macro-prudential policy can strengthen this effect. Compared with monetary policy or macro-prudential policy acting in isolation, the coordination between these two types of policies under the two-pillar adjustment framework has a better stabilizing effect on banks and firms. We further investigate the different effects of the two-pillar adjustment at different points in the business cycle and on different types of banks and firms. The implementation effect of the two-pillar adjustment is related to the business cycle because of the different policy objectives in different economic environments. As a result, the impact of the two-pillar adjustment on banks' risk exposure and firms' debt behavior also differs in boom and bust periods. Moreover, the effect of the two-pillar adjustment framework also differs for banks and firms of different types. These conclusions have an obvious policy implication that attention should be paid to the economic environment and to the heterogeneity of regulatory targets in the processes of policy formulation and implementation to strengthen the effectiveness of the two-pillar adjustment framework.
This paper makes three main contributions. First, unlike studies focusing on the effect of monetary policy or macro-prudential policy in isolation, we pay attention to the coordination between these two types of policies under the two-pillar adjustment framework through a well-designed empirical study using data on banks and firms. Our paper provides new thinking on the coordination between monetary policy and macro-prudential policy and enriches the literature on the two-pillar adjustment framework. Second, we both investigate the micro-stabilization effect of the two-pillar adjustment framework at the bank and firm levels and discuss differences in the micro-stabilization effect by looking at changes over the business cycle and allowing for heterogeneity in banks and firms. Our findings provide complementary evidence of the effectiveness of the two-pillar adjustment framework and shed light on the micro-transmission mechanism of the two-pillar adjustment framework. Finally, our results provide empirical evidence of the validity of China's two-pillar adjustment framework and have policy implications for the improvement of the two-pillar adjustment framework.

The coordination of macro-prudential policies that were introduced and developed rapidly after the global financial crisis in 2008 has attracted much attention. Financial relevance and interaction among countries has increased, the cross-border transmission of financial risks is becoming easier and more convenient, and the spillover effect of international economic policies is also increasing. Macro-prudential policy coordination can help countries reduce global systemic financial risks and strengthen global macro-prudential management. Moreover, international studies point out that the coordination of macro-prudential policies does help to improve the effectiveness of a country's macro-prudential policies (BIS, 2018). In previous financial crises, systemic banking problems typically began with the excessive expansion of credit in the financial system and the rapid rise of real estate prices. In banking crises, systemic contagion typically emerges through single or multiple countries causing cross-border financial connections to be significantly strengthened, as the frequency resonance characteristics of asset prices or capital flows during a financial crisis are more significant than in normal periods (IMF, 2018).
The consensus is that cross-border financial linkages aggravate the contagion of systemic banking crises, but whether the coordination of macro-prudential policies among countries with financial linkages can reduce the probability of such crises has not been fully examined. Various studies suggest that macro-prudential policies should be included in the scope of international coordination, and that macro-prudential policy coordination can effectively manage domestic and foreign economic shocks (Zhang and Zhao, 2020), but little empirical research has been conducted. Thus, we focus on the cross-border credit level to examine financial connections, and demonstrate that systemic banking crises in major lending countries will affect domestic banking systems through credit, investment, and other channels. We then discuss the impact of macro-prudential policy coordination on the spread of international banking crises.
We select 10 representative countries that suffered from the effects of the Asian and the global financial crises as samples, and construct a logit model and a multiple regression model to explore the impact of the coordinated implementation of macro-prudential policies both nationally and with financially related countries on the contagion of domestic systemic banking crises. The results show that the occurrence of a crisis in financially related countries will significantly increase the probability of a national systemic banking crisis, and the impact of macro-prudential policies implemented by financially related countries on domestic credit is more obvious than the impact on house prices. The coordinated implementation of such policies will significantly reduce the possibility of national systemic banking crises. Thus, improving the coordination of macro-prudential policies is conducive to maintaining global financial stability, which has important consequences for Chinese authorities devising policies aimed at strengthening macro-prudential management.
Our study makes three academic contributions. First, we propose the theory of “macro-prudential policy coordination,” and find that such coordination can help to curb the contagion of international banking crises. Second, we contribute to the literature on financial crisis contagion. Based on the perspective of cross-border financial linkage, we extend the basic functions of macro-prudential policies to the cross-border financial context. By examining the cross-border contagion mechanism of systemic banking crises and the impact of the international coordination of macro-prudential policies on crisis contagion, we increase the understanding of financial crisis contagion and financial crisis governance in an open environment.

The Fed entered the rate hike cycle in 2015, which had a huge impact on international financial markets, commodity markets and emerging countries, but it gradually withdrew its quantitative easing policy as the U.S. economy recovered. Geopolitical risks have increased in recent years, friction in Sino-U.S. trade has intensified, the international economic situation has continued to deteriorate, and China faces further external uncertainties. Now, in 2020, as the COVID-19 pandemic continues, the Fed has restarted its quantitative easing and the risk and uncertainty of monetary policies have increased significantly. According to the latest IMF forecast, the global economy will shrink by 3% in 2020. Thus, the uncertainty of prospects for global growth and the volatility of the Fed's monetary policy may have adverse impacts on China's real economy and make macro-control more difficult.
A large amount of the literature proves that the Fed's monetary policy adjustment has a significant spillover effect on other countries, which is to a large extent transmitted by international capital flows. However, there is no consensus has on the measures that emerging economies should take to effectively deal with the impacts of foreign monetary shocks. The quality of the measures can depend on the research perspectives, data processing, and model settings in relevant studies. Chinese research mainly focuses on traditional exchange rate, price, and financial friction. In this study, we incorporate international investors, foreign-funded enterprises, and the liquidity shocks and financial frictions of the banking sector into a new Keynesian DSGE model under open conditions, to measure the degree of capital control. The model consists of the six submodels of international investors and family, enterprise, banking, foreign, and government sectors. Monetary policy uncertainty has been found to adversely affect the economy, so we introduce the Fed's monetary policy uncertainty into the model and explore its effects.
Our study makes three main contributions to the literature. First, the research frameworks of Gertler and Karadi (2011) and Radde (2015) are extended to open conditions. A DSGE model that includes international investors, foreign direct investment, bank liquidity shocks, and financial friction is developed, and the impacts and mechanism of the Fed's interest rate hike on China's macro economy is analyzed. Second, we follow Fernández-Villaverde and Rubio-Ramírez (2010) and introduce the stochastic volatility of monetary policy in the U.S. interest rate rules to reflect the uncertainty of monetary policy. We then examine the effects of this uncertainty on China's economy. Third, based on the DSGE model, we use welfare analysis criteria to assess the measures for dealing with the Fed's interest rate hike, and conduct an analysis of the impacts of external adverse shocks.
We generate three main findings. First the Fed's rate hike leads to a decline in China's output, investment, and inflation, and also causes exchange rate depreciation, international capital outflows, and tight liquidity in the banking system. The increase in the degree of financial friction and bank leverage leads to a greater decline in China's output, investment, and asset prices after the Fed's interest rate hike, which then threatens China's macroeconomic stability. Second, restricting international capital flows in response to the Fed's interest rate hike can effectively stabilize China's economy and improve social welfare, and the implementation of a fixed exchange rate and the pegging of China's central bank to U.S. interest rates increases macroeconomic volatility and leads to a decline in social welfare. Third, the increase in the uncertainty of Fed's monetary policy leads directly to a decline in investment, labor demand, and output of foreign-funded enterprises, and also has significant negative spillover effects on China's total output, total investment, and asset prices, which increases the country's macroeconomic fluctuations.
Our results show that turmoil in international financial markets and international trade has adverse impacts on China's economy. Although stabilizing the economy is important in the short term, China should continue to reform its financial market in the long term. In addition, when formulating its interest rate policy, the Chinese central bank should consider China's economic and financial conditions more closely.

The reduction of excess production capacity (the improvement of capacity utilization, or CU) is one of the five goals of supply-side structural reform. As the main goal, financial reform is fundamental to the structural adjustment of the real economy and thus its further development and improvement. However, China's general economic development is faced with an imbalance between the financial sector and the real economy. Much of financial capital has not entered the real economy but circulates or remains idle within the financial system because the preference for financialization by non-financial enterprises reduces their investment levels in their main areas of business when "crowding out" effect of financialization is greater than the "reservoir" effect. We find that firms with low levels of total factor productivity (TFP) and CU gain less profits from their main businesses, have lower opportunity costs when issuing entrusted loans, and thus have greater incentives to issue entrusted loans. TFP and CU are therefore important determinants of the issuance of entrusted loans.
We first construct a theoretical model to explore how enterprises with different levels of TFP and CU choose the optimal entrusted loan amount when faced with specific amounts of physical and financial capital. In this model, the entrusted loan amount is expressed as a function of its TFP or CU. The income derived from financial investment is divided into interest income based on speculation and “value-added income” based on investment purpose. The model shows that the entrusted loan amount issued by enterprises is a monotonously decreasing function of the TFP and CU of enterprises, regardless of whether it is driven purely by financial profits or by real economic investments.
We investigate the relationship between TFP, CU, and financial resource allocation using a manually collected dataset of A-share listed companies on the Shanghai and Shenzhen stock markets that issued entrusted loans between 2007 and 2015. We calculate TFP following Olley and Pakes (1996), Levinsohn and Petrin (2003), and Ackerberg et al. (2006). For CU, we first use fixed asset turnover as a proxy, and then use the production function method to construct two more proxies: the ratio of the unobservable amount of capital that an enterprise actually puts into production to the observable potential amount of capital it could put in, and the actual output divided by the theoretical maximum output. The empirical results show that after controlling for other firm characteristics related to entrusted loan issuance, firms with lower TFP and CU are more likely to issue entrusted loans and to issue more, which suggests that such firms are more likely to engage in financial business activities. From further analysis we find that the relationship is more pronounced when the borrowing and lending firms are related parties and when the lending firm has political connections.
Finally, to control for endogeneity, we use environmental regulation intensity and the proportion of technical independent directors as the instrumental variables for TFP and CU, respectively, and estimate the models using the 2SLS method. Our results still hold.
This study makes three main contributions to the literature. First, we further reveal the relationship between enterprise productivity difference, overcapacity, and entrusted loans. Second, we establish a theoretical model to demonstrate the negative correlations between TFP, CU, and entrusted loan amount. Third, we manually collect entrusted loan data and conduct a comprehensive empirical analysis using various measures of TFP and CU from the perspectives of probability and the amount of entrusted loan issuance, and explicitly control for endogeneity.
In conclusion, entrusted loans have both positive and negative effects on the economy, and can be either a rational choice for enterprises or speculative. Governments should not only guide the direction of flow of entrusted loans but also closely supervise the motives behind them. Further reform of the financial system and increased support for the real economy are the most important factors. Our focus is mainly on the lenders of entrusted loans, but further research from the perspective of borrowers could help explain the total utility generated by entrusted loans. The pricing of entrusted loans, i.e., the interest rate, reflects the opportunity cost of capital. Therfore relationship between TFP, CU, and entrusted loan interest rates is also a topic worthy of further study.

The recent increase in wealth inequality in China has captured the attention of all members of society. Based on survey data from the China Family Panel Studies, the Gini coefficient of China's wealth distribution was 0.7 in 2014, and 29.7% of the total wealth is now owned by the top 1% of earners, while the bottom 50% own only 8.1% of the total wealth. This large wealth inequality harms economic efficiency, hinders social mobility and exacerbates income inequality through the channels of asset gain and intergeneration transfer. Hence, it is crucial to study the mechanisms of wealth inequality.
In this paper, we consider the role of the private sector in the transformation of China's economy and the role of individuals' saving and wealth accumulation behaviors to investigate the causes of wealth inequality. Using a two-sector heterogeneous agent general equilibrium model in which heterogeneous producers face collateral constraints and make occupational choices, we analyze the effects of financial market frictions and income risks on the wealth distribution. Our model assumes that individuals differ in their asset holdings and entrepreneurial abilities. Each individual makes an occupational choice between being an entrepreneur and being a worker. Entrepreneurs face collateral constraints and are hit by an uninsurable idiosyncratic productivity shock in each period. Workers earn labor income and face no uncertainty. We solve for the stationary wealth distribution and calibrate the model to match the empirical facts in China. In the calibrated model, we study the influence of occupational choice, financial frictions and income risks on the wealth distribution. Our results show that reducing frictions in the financial market reduces entrepreneurs' savings, which in turn lowers wealth inequality. Reducing financial market frictions can substantially lower the wealth share of the top 1% and 10% of individuals and significantly improve the wealth share of the middle class, with a minimal impact on the least wealthy individuals. The influence of income risks on the wealth distribution is nonlinear. When income risks increase, wealth inequality first declines and then rises. The nonlinear effect is due to the two competing effects arising from a precautionary savings motive and a self-financing motive. When income risks are low, the self-financing motive dominates. A decline in income risks makes all individuals more likely to save, which in turn leads to a decline in wealth inequality. When income risks are high, the precautionary savings motive dominates and entrepreneurs save more, leading to an increase in wealth inequality. We also investigate how financial market improvements change the wealth distribution in the presence of income risks. Our results show that financial market improvements only have a significant impact on the wealth distribution when income risks are high.
Our work has several policy implications. First, improving financial markets should be considered to alleviate wealth inequality. Second, lowering financial market frictions mainly benefits the middle class. Third, reducing financial market frictions cannot replace an inclusive financing policy. To achieve the goal of reducing poverty and social justice, inclusive financing is needed to provide better financial services for small companies and low-income people. Fourth, the government should build a stable short-run and long-run policy environment to help entrepreneurs reduce their income risks, which is crucial for reducing wealth inequality. Fifth, when implementing the financial market improvement policies needed to alleviate wealth inequality, the government should account for the effect of income risks due to their amplification effect.
The paper contributes to the literature in three ways. First, we abandon the representative agent assumption and use a continuous-time heterogeneous agent model framework to study wealth inequality in China. Second, based on the calibrated model, we conduct a series of experiments and demonstrate that financial market frictions in China are an important factor causing wealth inequality. We analyze the potential mechanisms in detail using our model. Third, we show that financial market frictions affect the macro economy through the resource misallocation and economic fluctuation channels and can cause wealth inequality by influencing individuals' saving and wealth accumulating behaviors.

The reform of the Provincial Cooperative Union (PCU) is the main aim in the current Rural Credit Cooperatives (RCCs) reform. Document No. 1 from the central government raised the issue of promoting it for three consecutive years from 2016 to 2018, but no substantial progress has been made nationally. The reform faces challenges, particularly in terms of decreasing the management function of the PCU. The specific concerns are as follows. First, in terms of management capabilities, most RCCs do not achieve a level of governance that enables them to develop independently, various moral hazards may emerge, and regional financial stability and rural financial services can be affected once the PCU withdraws from management. Second, in terms of the equal rights and responsibilities, the PCU is responsible for the management of local RCCs on behalf of the local government. The phasing out of its management may lead to local governments assuming responsibility for RCC development and consideration of risk while they cannot effectively manage them. Third, in terms of regulatory resources, the PCU plays an important role in the risk prevention and control of RCCs and makes up for any shortcomings resulting from insufficient supervision in the current county areas. The withdrawal of its management may bring greater pressure on local regulatory authorities. Since 2017, various risks in RCCs have been exposed, not only in terms of their weak management capabilities but also revealing loopholes in the PCU management system and in industry supervision. This poses a fundamental and difficult question concerning the current reform of the PCU: how can we evaluate the impact the PCU has on the efficiency of RCCs？
Our research object consists of 75 county-level legal RCCs in Province A, and we develop a questionnaire for 150 of their senior executives and department heads and a survey of their operation statuses from 2010 to 2017. We then provide a detailed summary of the management and service functions and characteristics of the PCU. We then introduce an empirical method to indirectly analyze the impact of the PCU on the efficiency of RCCs, by comparing the differences between the orientations of PCU management and the improvement in RCC efficiency, and conduct an empirical analysis of the survey data of the 75 research subjects.
Our main empirical conclusions are as follows. First, the efficiency levels of the sample RCCs have not significantly improved in recent years, and the differences between samples have remained comparatively stable. Second, PCU management is susceptible to short-term performance goals, leading it to push RCCs to continuously increase their business scale and total income. Indicators such as loan growth and the total cost-to-income ratio are closely related to the short-term business aims of RCCs, so they have the most significant impact on the outcomes of the PCU assessments of RCCs under management. However, in terms of indicators such as deposit and profit growth, current loan recovery, provision coverage rate, and the level of supporting agriculture and corporate governance, the PCU offers no effective incentives or constraints. Third, although the PCU’s management orientation broadly meets the requirements for improving the efficiency of RCCs in terms of several key indicators, when the scope of the indicators is expanded, i.e., with increased management objectives, its management orientation deviates from the general direction of efficiency improvement for the RCCs.
Our study makes three main contributions to the literature. First, our analysis of the specific management and service content and related restraint methods of the PCU is more systematic and detailed than in previous studies. Second, we conduct a quantitative evaluation of the management orientation of the PCU, based on the criteria and results of its assessment of RCCs. Third, we address the empirical problem of how the management of the PCU affects the efficiency of RCCs, and propose an innovative empirical method and test province A as a sample. We explore the potential reasons why the management orientation of PCU is in line with or deviates from of the direction of efficiency improvement in RCCs.

The problem of imbalanced and inadequate development in the financial sector is prominently reflected in the allocation of financial resources. Financial development in rural areas is relatively backward and the financing needs of disadvantaged groups such as poor households have not been effectively met. Digital financial inclusion is an important carrier for the development of inclusive finance, as it can effectively expand the coverage of inclusive finance and improve the efficiency of financial resource allocation. However, the development of digital financial inclusion is constrained by factors such as the digital divide. Due to the uneven distribution of digital technologies and existing developmental obstacles, vulnerable groups are likely to encounter new financial exclusions such as “tool exclusion” and “evaluation exclusion” due to their lack of Internet tools and financial literacy. Is there a Matthew effect in digital inclusive financial development？ If so, will income inequality between poor and non-poor households expand as a result？
Using the seeming unrelated regression method (SUR) with the digital inclusive financial index compiled by the Peking University Digital Finance Center, matched with data from China's Labor Force Dynamic Survey (CLDS), we look at poor and non-poor households. We demonstrate the existence of the Matthew effect in digital financial development and study potential mechanisms. We provide a new perspective on digital financial inclusion and give advice for overcoming the imbalances in financial development through the formulation of policies to reduce the income gap in the post-poverty alleviation era.
We find that digital finance stimulates livelihood consumption smoothing and the development factor accumulation of poor households, albeit insignificantly. Digital finance significantly facilitates the risk prevention, consumption smoothing, factor accumulation and even entertainment of non-poor households, which proves the existence of the Matthew effect. The Matthew effect differs between digital finance products; the Matthew effect for digital credit collection is greater than that for digital credit and digital payment. The impacts of digital finance on different income disparity types are heterogeneous over the course of digital finance's development, especially for the operating income disparity.
This paper makes several contributions. First, in the context of winning the battle against poverty, we systematically study for the first time whether the Matthew effect exists in the process of digital financial development and explore the mechanisms of the differences in the impact of digital finance on poor and non-poor households, enriching the literature on digital finance and clarifying the causes of the current imbalances in digital financial services for the rich and poor. Second, we explore whether there are differentiated Matthew effects for different digital financial products for poor and non-poor households and investigate the heterogeneous impacts of digital finance on different types of income gaps at a micro level. Third, we supplement the literature on digital finance and the Matthew effect, enriching theories of digital finance development and providing theoretical and empirical support for the establishment of a fair and effective income distribution system.
Based on our empirical conclusions, we should focus on the following three goals to reduce the Matthew effect of digital financial development. First, for poor households who do not have the ability to escape poverty, the government should strengthen the poverty alleviation effort by offering education and improving the households' financial literacy by multiple methods to overcome the self-exclusion brought by digital technology. Second, we should encourage digital financial platforms and traditional financial institutions to innovate, to strengthen online channels, to continuously improve digital financial functions and to fully tap the functions of digital financial usage and digital support services such as digital insurance and digital investment to improve the utility and affordability of digital finance for poor households. Third, we should increase investments in the communication infrastructure of poor villages and towns, implement the “Internet Equipment to the Countryside” plan, popularize digital terminals and use 5G technology to extend the radius of financial services to overcome the tool exclusion of poor households so that poor households in remote areas can enjoy high-quality financial services.

Bank credit is an important source of funds for firms to invest in R&D. Lending in the banking industry is affected by market-share competition, and thus influences firms' innovation activities. However, the reduction in the level of commercial bank concentration, as reflected by increased market-share competition, does not necessarily imply that price competition has also intensified. Banks attempt to ensure that interest rates remain stable through deposit and loan spreads, and improvements are still required in China's market-oriented interest rate formation mechanism. The price competition of commercial banks does not increase even when the entry barrier is lowered and the market-share competition intensifies. Thus, the economic outcomes of such competition should be examined from the specific perspective of banking price competition.
We construct an efficiency-adjusted Lerner index of commercial banks at the prefecture level. Then we assess the effect of price competition of commercial banks on the innovation input and output of firms using a large sample of A-share companies listed in the Shanghai and Shenzhen stock exchanges. We also identify the influencing mechanism of financial constraints with a mediating effect model. The results show that the price competition of commercial banks can alleviate fims' financial constraints, thus encouraging their R&D investment and increasing their innovation output. Further analyses show that this price competition also encourages banks to provide more direct funds to firms for corporate innovation by increasing their risk tolerance, so they issue more high-risk and high-yield loans, i.e., a “risk effect.” This also reduces the cost of credit for firms and increases the availability of banks loans, thus alleviating their financial constraints and indirectly promoting R&D investment through the “price effect” (the average return converges to marginal costs) and the “quantity effect” (the increased quantity compensates for the decreased price, and therefore increases the scale and scope of bank loans).
We also examine the heterogeneities implicit in the effect of bank price competition on corporate innovation from the perspectives of the degree of interest rate marketization and firm type. The central bank announced the liberalization of the deposit interest rate ceiling on October 24, 2015, so we take this as a quasi-natural experiment and compare the impacts of banking price competition at different stages of interest rate marketization. The results show that the deregulation of interest rates can adversely affect banks' net interest margin and reinforce their price competition, which in turn alleviates firms' financial constraints and promotes their innovation activities. The main effect of bank price competition is that it strengthens the risk preference of banks and increases the availability of credit to firms. We also find that banking price competition alleviates the financial constraints of private firms to a greater extent than those of state-owned firms, and thus can better encourage innovation in private firms.
This study makes three main contributions to the literature. First, by considering the significant differences between the market-share competition and price competition of commercial banks, we explore how bank price competition affects the R&D investment activities of firms and analyze the direct “risk effect”, which reflects the risk preference of banks, and the indirect “price effect” and “quantity effect” associated with firms' financial constraints. We thus provide new evidence for understanding the relationship between bank competition and real economic development, which can be of benefit to both academics and policy makers. Second, we use a mediating effect model to identify how financial constraints mediate the effect of bank price competition on corporate innovation. We construct an efficiency-adjusted Lerner index of banking industry based on prefecture-level data to measure the degree of price competition of commercial banks, and empirically evaluate the impact of banking competition on corporate innovation activities. Third, by treating the liberalization of the deposit interest rate on October 24, 2015 as an exogenous shock, we examine how banking price competition influences the innovation investment of firms at different stages of interest rate marketization.
The results have important policy implications in terms of the market-oriented reform and the optimization of bank credit, which can encourage innovation and help improve the quality and effectiveness of the financial sector in the real economy. Our findings could thus inform the further implementation of “innovation-driven development strategies.”

Entrepreneurship usually needs to meet certain start-up capital requirements, but due to the imperfect credit market, most entrepreneurs are faced with the problem of credit constraints. As a result, family-owned funds are often the main source of capitals for entrepreneurs. However, families usually also need to spend a great deal of money in purchasing houses, and borrowing to buy houses has become the norm for Chinese families. Chinese households can usually obtain housing mortgages through formal financial institutions, such as commercial loans, housing provident fund loans, and their portfolio loans. They can also borrow from informal credit channels such as private financial institutions and friends or relatives, namely private lending. In addition to their different sources, these two types of home financing channels have significant differences in terms of loan amount and duration. Thus, they might have different effects on the wealth levels of families, and even family entrepreneurial behavior.
Using 2017 China Household Finance Survey (CHFS) data, we employ the Probit model to empirically examine the effects of house financing methods on family entrepreneurial behavior and their influencing mechanism based on relationship lending theory and liquidity constraint theory. Our findings indicate that obtaining mortgage loans is more conducive to family entrepreneurship than purchasing houses through informal financing channels. The amounts borrowed through mortgage loans are higher and the loan terms are longer, so there households are more able to mitigate their liquidity constraint, which makes it easier for them to start businesses. Longer-term and better credit relationships between households and banks during the mortgage repayment periods can also effectively increase the likelihood of family access to formal credit, thus promoting family entrepreneurship. Our results also suggest that the development of the housing market and housing credit market is important in the process of implementing entrepreneurship and innovation strategies, and thus should not be ignored. The current housing finance system should be developed further and closely linked with the entrepreneurial credit market, thus alleviating the problems and expense of financing for small and micro businesses. Our study is both theoretically and practically significant, because it contributes to research in the fields of household lending behavior and entrepreneurial behavior and provides a new perspective on the methods that can be used to encourage entrepreneurial activities .
There are three innovations in our study. First, the relationship between housing and entrepreneurship is examined from the perspective of house financing methods, based on the theories of relationship lending and liquidity constraints. At present, most scholars mainly focus on the impacts of housing prices, housing assets, housing ownership, housing property rights on entrepreneurial behavior, while our findings extend the research into the relationship between house financial channels and entrepreneurship. Second, the lack of high-quality household level survey data in China has prevented extensive research into household financing decision-making. We use the recent household survey data from the CHFS, which is collected through scientific sampling and survey methods, and which includes detailed information on household loans and entrepreneurial activities. Thus, we have good data support for this study. Third, the numerous studies on home purchase financing decisions in Western countries mainly focus on fixed-rate mortgages, adjustable-rate mortgages, and housing refinancing. However, China's housing finance system is very different from those of Western countries, and the ability of families to finance housing is closely related to their levels of wealth. Thus, examining the impacts of home purchase financing methods on family entrepreneurship in China both reflects the characteristics of its housing credit market and provides valuable insights into the effects the development of Chinese housing finance system has on its private economy.

As China adjusts to its new stage of economic development and the globalization of trade and finance, corporate investment enthusiasm is waning. This is due to the reduced profits of traditional industries, a decline in the labor force and a lower labor-capital ratio. Stocks, bonds, some financial derivatives and other financial assets have become the hot areas of corporate investment. Debt default is a major disruptive event in a firm's operation and the default risks of both private firms and state-owned enterprises have been rising since March 2014, meaning that lowering the debt risk of enterprises has become a focus of local government departments. Chiang et al. (2015) and Brogaard et al. (2017) construct a simplified default probability model based on the work of Bharath and Shumway (2008), who document that corporate default risk is closely related to the absolute value and the volatility of asset values, suggesting that better corporate governance mitigates corporate default risk.
From a micro perspective, a firm's financial asset allocation decision is influenced by two mechanisms, the reservoir effect and the profit-seeking effect. The reservoir effect arises because financial assets can stabilize a company's income and reduce the company's financing costs, both of which enhance the company's development potential. An implication of the profit-seeking effect is that holding too many financial assets threatens a firm's main business, inhibits the productivity of its physical investment and damages its long-term development. We focus on the agency cost in the financial asset allocation decision. We show that if the reservoir effect is the main driver of the financial asset allocation decision, financial asset investments arise from a strategic choice made by management to maintain the stable development of the enterprise, which reduces the agency cost. If the profit-seeking effect dominates, financial asset investments are the result of management myopia and so aggravate the agency conflicts between shareholders and managers.
Using data on China's A-share listed firms from 2007 to 2016, we find that firms with more corporate financial assets have lower default risks, so the reservoir effect of financial asset allocation is significant. However, agency conflict is greater when monetary policy is loose, as loose monetary policy attenuates the negative relation between corporate financial asset holding and default risk.
The government can adjust the structure of the national economy by formulating industrial plans appropriate for China's institutional setting. However, the information asymmetry between firms and the government means that the policies implemented by government regulators can have uncertain policy effects and adverse selection on the part of management can increase the risk of corporate default. In this paper, we discuss the effect of industry policy on the relation between a firm's financial asset allocation and its default risk and find that the reservoir effect is significant for firms belonging to industries supported by China's industrial plan, suggesting that government regulation alleviates enterprises' agency problems. However, supportive industrial policy exacerbates the adverse selection problem for management when monetary policy is loose, so financial asset investment is an important factor influencing corporate default risk. In addition, we use the quality of accounting information as a measure of agency costs and find that accounting conservatism mediates the relation between a firm's financial asset allocation and its default risk.
We make several contributions in this paper. First, we examine the effect of a firm's financial asset allocation on its corporate default risk, enriching discussion of which factors drive corporate default risk. Our results reveal the internal reason for the risk changes of China's listed companies and provide theoretical guidance for regulatory authorities on making policy. Second, we investigate the path of influence of financial asset allocation on default risk through agency cost, allowing us to explore the internal logic of the influence of a firm's financial asset allocation on its default risk and deepening the discussion of the motivations for financial asset allocation decisions. Finally, we verify the moderating effects of monetary policy and industrial policy on the relation between a firm's financial asset allocation and its default risk, contributing to the literature on macroeconomic policy and micro corporate behavior and providing useful evidence that the government can use to improve the effectiveness of policy.

Derivatives are important tools by which companies hedge risks related to exchange rates, raw materials, finished products, or interest rate fluctuations. In recent years, derivatives have been applied on an increasingly large scale. However, it is difficult for investors and analysts to understand the nature of derivative usage, including the diverse motivations for using derivatives, the complexity of their economic substance, and the complexity of accounting treatment of derivatives, especially hedge accounting. Analysts' following and predicting behavior determines whether a company's management capabilities and earning performance are smoothly and adequately transferred to the capital market. Therefore, the influence of derivative usage on analysts' forecasts is an urgent issue. In addition, compared with non-star analysts, star analysts are equipped with superior information resources and professional capabilities, which allow them to release more accurate earnings forecasts. However, they also tend to be overconfident. Therefore, the dual complexity of derivatives provides a test for the difference between star analysts and non-star analysts' forecasting behavior.
Based on the annual reports of Chinese A-share listed non-financial companies, we utilize the textual analysis method to construct data on derivative usage from 2007 to 2017. The rationale for our sample is as follows. First, the financial instrument standards used by listed companies beginning in 2007 require enterprises to disclose quantitative and qualitative information on derivatives in detail in their financial reports. Second, financial firms' motivations for applying derivatives and relevant regulations may be different from those of their non-financial counterparts. We further analyze whether star analysts and non-star analysts have different forecast behavior when facing complex derivative usage information.
Our findings show that analyst coverage and public information precision declines significantly for companies that use derivatives. This indicates that derivative usage affects analysts' ability to interpret information and has a negative impact on the information environment. We also find that relative to non-star analysts, star analysts' coverage and public information precision change insignificantly, and their private information precision increases significantly. This indicates that star analysts can use their professional advantages and information interpreting capabilities to supplement private information in response to reputational or economic incentives. For non-star analysts, coverage and public information precision decline significantly, which indicates that non-star analysts are less willing to take risks in forecasting these firms. We perform several sensitivity tests and the conclusions remain unchanged.
The study makes two main contributions to the literature. First, compared with the forecast error and dispersion measure, the measure of public and private information precision used in this paper (Barron et al., 1998) reveals additional information on analysts' forecasting behavior, which is helpful for understanding the mechanism of analysts' predictions and opens the “black box.” Second, previous studies of star and non-star analysts pay little attention to whether cross-sectional differences in companies have different influences on star versus non-star analysts. We test whether star and non-star analysts have different forecast behavior, especially in relation to public and private information precision, when they face derivative usage with complex economic substance and accounting information.
Our findings have several implications for policymakers. The complexity of derivative accounting standards may affect the transparency and understandability of financial reports and reduce analysts' public information precision. Therefore, it is important to improve the capital market information environment by modifying and simplifying derivative accounting standards.