The 2008 global financial crisis showed that financial stability has a crucial impact on economic stability, which gives birth to macroprudential policy. Additionally, the European debt crisis has demonstrated that fiscal imbalance contributes to financial and economic instability, which ultimately leads to systemic financial and economic risks. It is necessary to enhance the coordination of monetary, fiscal, and macroprudential policies from a theoretical and practical perspective. This necessity stems from the highly endogenous relationships among the banking sector, public finance, and the real economy under the modern economic system, and the endogeneity of policy targets indicates the need for policy coordination and consolidation.
The implementation of policy coordination, although straightforward from a theoretical perspective, is challenging in practice. For example, problems that present an extreme challenge to the China include (1) how policy rules should be set in the case of policy coordination, (2) whether the coordination mode should be changed when facing different shocks and fluctuations, and (3) under what circumstances policy conflicts or overlaps may arise and how these can be resolved.
As the Chinese economy enters the “new normal,” the country's economic and financial systems face a transitionary period of structural reform, and there is an urgent need to consider how to better coordinate monetary, macroprudential, and fiscal policies. Therefore, this paper builds a DSGE model incorporating multiple sectors and multiple policies from a theoretical perspective and conducts a preliminary analysis of the optimal rules and coordination of monetary, fiscal, and macroprudential policies, which clarifies some basic theoretical problems and provides ideas for further research.
The results show the following: (1) To achieve welfare maximization, monetary policy should target output growth and the inflation gap, government expenditure policy and tax policy should aim for output stability and government debt stability, respectively, and macroprudential policy should focus on key financial variables such as credit spread and social financing; (2) the appropriate combination of monetary, fiscal, and macroprudential policies has a more positive effect on economic and financial stability than any one of these three policies, and policy discordance weakens policy effectiveness and exacerbates economic and financial volatility, resulting in significant welfare loss; (3) through the mechanism of policy coordination leading to policy synergy, fiscal policy enhances the stability of output, inflation, employment, and government debt, which contributes to the positive effects of monetary policy (with government expenditure policy being more effective than tax policy), whereas macroprudential policy promotes financial stability and reduces financial risk, which strengthens the effects of monetary policy.
The policy implications of this paper are that it is necessary to further strengthen the coordination of fiscal policy and the “two pillars” framework of monetary policy and macroprudential policy, and that a prerequisite of this strengthening is policy synergy that enhances the coordination and cooperation among multiple policy departments based on policy rules that are in line with China's conditions in the case of the coexistence of multiple economic and financial policies. Meanwhile, in the context of policy combination, due to the endogenous effects and interactions between different policies, policymakers should pay attention to the overlap between policy objectives. They should also focus on the conflict between policy objectives and policy tools when using a combination of multiple policy tools, which requires continuous in-depth follow-up investigation of the transmission mechanism and path in the context of multiple policies in practice. Furthermore, with economic development and financial deepening, various exogenous shocks have occurred in China and differences have appeared between the cooperative effects under different exogenous shocks. As a result, we should clarify the source and nature of shocks that trigger economic and financial fluctuations under a certain policy combination so that cooperative modes and policy rules can be targeted to achieve policy coordination.

High leverage has helped China to pursue economic growth for a long time, but it has begun restricting sustainable development. Therefore, determining how to balance macro leverage and economic growth is extremely important. This article constructs a macro-control model that dynamically balances the dual policy objectives of risk prevention and steady growth and uses a latent threshold-time varying parameter-vector autoregressive (LT-TVP-VAR) model to evaluate the time-varying impulse response function of China's monetary and fiscal policy effects on household, corporate, and government leverage and economic growth in various periods from 1996 to 2019. Then, a counterfactual method is used to evaluate the optimal fiscal and monetary policy combination of steady growth and risk prevention.
This article's contributions are mainly the following: First, in theory, risk prevention and steady growth are mutually complementary opposites. Therefore, this article constructs a macro-control theoretical model to measure the dynamic balance between the two. The model can also test the effects of fiscal and monetary policy in achieving the goals of risk prevention and steady growth. Second, the traditional constant coefficient model cannot identify the time-varying relationship between variables, and the TVP-VAR model is limited by the subjectivity of setting time-varying parameters. Therefore, this paper uses the LT-TVP-VAR model. The advantage of this model is that there is only a time-varying relationship between variables when the relationship between the variables exceeds the latent threshold. Otherwise, there is a constant coefficient relationship between the variables, which is more in line with reality. The LT-TVP-VAR model accounts for the time-varying and structural mutations of the economic structure. In addition, the setting of latent thresholds can eliminate the instability between variables and characterize the dynamic and static relationship between the dual goals of macro-control. Third, this study assesses the time-varying effects of macro-control on the dual goals of steady growth and risk prevention by measuring and comparing the effects of fiscal and monetary policy combinations to find the combination with the desired policy effect. The results provide a theoretical basis and useful reference for policy formulation.
The results show that, using the 2008 international financial crisis as a demarcation line, there are stage differences in the effects of macroeconomic policies. Before 2008, the steady growth effect of price-based monetary and fiscal policy was obvious, and quantitative monetary policy significantly affected steady growth and risk prevention. Since 2008, the policy orientation has been to dynamically balance the goals of steady growth and risk prevention. Historically, the influence of fiscal policy on leverage in the three sectors has shown an increasing trend, the effect of quantitative monetary policy has stabilized, and the regulatory advantages of price-based monetary policy have gradually emerged. The results of the counterfactual simulation show that without monetary policy coordination, fiscal policy cannot achieve the objectives of steady growth and risk prevention. Moreover, without the influence of fiscal policy, the effect of price-based and quantitative monetary policy on leverage in the three sectors and economic growth is weaker. Therefore, the policy or policy combination that is effective in regulating the economy depends on the policy objectives. For example, a combination of fiscal and monetary policies is effective for deleveraging the three sectors. In terms of stable growth, the effective coordination of fiscal and monetary policies from 1996 to 2007 was conducive to achieving steady growth. However, after the international financial crisis, large-scale fiscal expansion may weaken the effect of monetary policy in maintaining stable economic growth.

This paper uses data from China's stock market, money market, real estate market, and credit market to measure the volatility and interactions of the horizontal correlation between China's financial cycles and financial sub-markets from a temporal and spatial perspective. First, we combine the two dimensions of time and space upon which macroprudential policy is based, analyze the operation of China's financial sub-markets in a comprehensive financial cycle and observe horizontal correlations therein. Second, when selecting indicators, in addition to the credit and real estate markets, which are widely used in financial cycle-related research, financial sub-markets with significant horizontal spillover effects, such as the money market and stock market, are used to jointly measure the financial cycle and comprehensively reflect its volatility. Third, based on the generalized variance decomposition spectrum representation analysis framework proposed by Baruník and Křehlík (2018), this paper measures the short-term and long-term horizontal correlations between China's financial sub-markets.
The results of this empirical analysis demonstrate that the financial cycle is consistent with horizontally correlated cyclical trends. The accumulation and outbreak of systemic risk in the temporal dimension is closely related to increases in the horizontal correlation in the spatial dimension; the release of systemic risk in the temporal dimension corresponds to a gradual decline in the correlation between financial sub-markets in the spatial dimension. Changes in the horizontal correlation between financial sub-markets are the microfoundation for the simultaneous expansion and decline of financial markets in the temporal dimension. The length of China's financial cycle is approximately 10.33 years and the length of the horizontal correlation cycle in the spatial dimension is about 10.58 years.The cyclical fluctuations in the horizontal correlations in China's financial markets are driven mainly by medium-term and long-term spillovers, and the duration of the spillover linkages is longer than 2 months.
After China's real estate cycle peaks, the real estate market shows significant spillovers to the stock and credit markets, which increase the correlation between the stock market, the credit market, and the real estate market and, in turn, transmit volatility to the stock and credit markets. After China's stock market accepts spillovers from the real estate market, the stock market cycle gradually peaks and then continues to make significant spillovers to the real estate and credit markets. After China's credit market receives spillovers from the stock and real estate markets, the credit cycle gradually peaks.
Based on the empirical results, this paper proposes the following policy implications from the perspective of macroprudential supervision.
First, major financial sub-markets should be included in macroprudential management. The monitoring and evaluation of systemic financial risks should be strengthened in accordance with the laws of temporal and spatial transmission of financial cycles and horizontal correlations. When the financial sub-market cycle peaks, attention should be paid to the enhancement of the spillover effect from this sub-market on other markets. For financial sub-markets that are susceptible to other sub-markets, risk prevention and control measures should be taken before the financial cycle peaks to prevent them from accepting spillovers from other markets and triggering risk resonance.
Second, the duration of the policy impact could be better predicted based on the duration of the spillover relationships. When implementing macroprudential policy, the duration of the spillover relationship should be considered to better estimate the policy time lag and issue macroprudential policy guidelines in a timely manner. Monetary policy, credit policy, real estate financial prudential policy, and capital market regulatory policy coordination should be designed to reduce fluctuations in the financial system and negative externalities to the real economy.

Deficiencies in bank governance are considered to be one of the key factors behind the financial crisis of 2008. Since then, such deficiencies have attracted increasing attention in many countries around the world. China has emphasized the need to improve bank governance, clarify ownership relationships, and attach greater importance to proactively controlling and dissolving systemic risks. It has become increasingly common for institutional investors (especially insurance companies) to hold listed bank shares through financial products. Therefore, the impact of this practice on the systemic risk of listed banks cannot be ignored. Additionally, with the further relaxation of the insurance capital shareholdings of Chinese listed banks, the proportion of listed bank shares held by insurance companies has risen sharply since 2010. High shareholding ratios of financial products may induce self-interested behavior in institutional investors, leading to changes in the relationship between financial product shareholding and bank systemic risk. The phenomenon of institutional investors holding a disproportionate number of a bank's shares through financial products has drawn the attention of supervisory authorities. To standardize the management of banks' equity, the China Banking Regulatory Commission (CBRC) issued Interim Measures for Equity Management of Commercial Banks (henceforth “the Equity Management Measures”) in January 2018. This publication indicates that financial products can be used to invest in the shares of listed banks but the total number of shares of the same bank held by a single investor through financial products should not exceed 5%. Therefore, it is worthwhile to investigate how the Equity Management Measures affect the behavior of institutional investors. This question is of great importance to improve banks' equity management and control and dissolve bank systemic risk in China and promote the high-quality development of the Chinese economy.
To address the above issues, this paper studies the influence of financial product shareholding on bank systemic risk and its heterogeneity using GMM and synthetic control methods and panel data from 16 listed banks in China during 2011-2019. We further discuss the policy effects of the restriction of institutional investors' shareholding of financial products of a listed bank imposed by the Equity Management Measures. The results show the following: (1) A higher total shareholding ratio of financial product shareholders helps to reduce bank systemic risk as the shareholders' professional advantages allow them to better supervise the bank if the shareholding ratio of a single institutional investor is less than 5%; (2) when the shareholding ratio of the largest shareholder of financial products is over 5%, the shareholder will use their power for personal gain, which will increase bank systemic risk and weaken the reducing effect of the shareholding of financial products on bank systemic risk; (3) as insurance product holdings dominate the total shareholding of financial products, the impact of such holdings on bank systemic risk is similar to the total impact of financial product holdings; (4) the total shareholding ratio of financial products other than insurance products can reduce bank systemic risk; and (5) the Equity Management Measures help to constrain the excessive risk-taking behavior of institutional investors whose shareholding ratio exceeds 5%, thereby reducing the systemic risk of the corresponding banks.
This research has important policy implications for improving banks' equity structures. First, it indicates that financial regulatory authorities should encourage institutional investors to invest in listed banks to better supervise bank behavior and improve the diversification of banks' equity structures. However, the shareholding ratio of institutional investors must be controlled as a high shareholding ratio may induce self-interested behavior and weaken their role in reducing bank systemic risk. Second, regulatory authorities should strengthen bank equity management. These authorities should strictly enforce shareholder admittance standards, strengthen shareholder qualification reviews, regulate shareholder behavior, and clarify shareholder responsibilities, thus preventing “shareholder chaos.”
This study contributes to the literature in several ways. First, it focuses on recent changes to the equity structures of Chinese listed banks. It is increasingly common for insurance companies and other financial institutions to increase their shareholdings in listed banks through financial products. This paper analyzes the impact of the structure of financial product shareholdings on bank systemic risk. Second, as the shareholding ratio of financial products has increased significantly in China since 2013, we further discuss the impact of the heterogeneity of major financial product shareholders on bank systemic risk. As a high shareholding ratio of financial products may lead institutional investors to engage in self-interested behavior, it may change their relationship. Third, we use synthetic control methods to estimate the impact of the Equity Management Measures on bank systemic risk as they have diverse effects on listed banks with different shareholding ratios of financial products.

One of the most important tasks for the Chinese economy is to control economic and financial risks to achieve high-quality growth. Firms are the basic unit of economic activity and their risk levels not only affect their profitability but also the risk level of the whole economy. Therefore, it is important for both researchers and policymakers to understand the determinants of firms' risk level. Research shows that firms' risk level can be directly affected by their ownership structure, manager characteristics, and corporate governance, and can also be influenced by monetary policies, subsidies, leadership transitions, government connections, bank connections, and social networks. However, few studies investigate the role of labor protection in firms' risk level.
Labor protection can affect firms' risk level through multiple channels. First, according to risk mitigation theory, firms (especially more financially constrained firms) may make safer investments to sustain their ability to invest in potentially profitable projects in the future. However, according to risk-shifting theory, firms may shift from safer investments to riskier investments in the face of greater distress risk, which will result in a higher risk level. Thus, the net effect of labor protection on firms' risk is unclear.
We estimate the effect of labor protection on firms' risk using a dataset of Chinese listed firms from 2003 to 2015. We study this effect by analyzing the impact of the adoption of the Labor Contract Law in 2008. This law provides an ideal opportunity to study the effect of labor protection on firms' risk. First, it has significantly increased the level of labor protection; second, its effect is different in industries with different labor intensity levels. We construct a difference-in-differences (DID) model based on industries with different labor intensity levels just before the adoption of the law, in which the more labor-intensive industries are the treatment group and the less labor-intensive industries are the control group. The first difference results from the change in the risk level before and after the adoption of the Labor Contract Law, whereas the second difference results from the difference in this change in the risk level between industries with higher labor intensity and industries with lower labor intensity.
Our regression results show that the Labor Contract Law has significantly lowered firms' risk. This result is valid after parallel trend analysis, controlling for the effects of contemporary policies, using different measures of the dependent and independent variables, and using a balanced panel sample. Mechanism analysis supports risk mitigation theory. Specifically, firms face increased leverage and greater distress risk under the shock of the Labor Contract Law. As a result, they hold more cash for potentially profitable projects in the future. Additionally, we investigate the heterogeneous effects of the Labor Contract Law and find that it has a larger effect on state-owned firms, firms with higher leverage, and firms with a lower current ratio. Our results suggest that implementing laws to enhance labor protection is an effective way to control firms' risk.
Our paper makes two contributions to the literature. First, we identify the causal relationship between labor protection and firms' risk level. The effect of the labor market financial market is a popular topic; however, relatively few studies investigate this subject in China. Therefore, our paper enriches this line of research. In addition, we provide further evidence of the effect of the Labor Contract Law on firms' risk. The effect of this law is a topic of intense discussion: some claim that it helps protect employees' rights and encourages employees to work harder, whereas others state that it increases labor costs and reduces firms' profitability. We find that the Labor Contract Law significantly affects firms' risk.

China's labor cost advantage is gradually weakening, and the population is aging rapidly. The minimum wage standard since 2004 has strengthened the rising labor cost trend. Theoretically, increasing capital input and the capital-labor ratio are important measures to help firms cope with rising labor costs and an important way to improve firms' productivity. However, rising labor costs also reduce corporate profits and free cash flow, squeezing investment incentives and curbing capital investment. Therefore, do rising labor costs force firms to increase their capital investment and capital-labor ratio？ Do these activities mitigate the negative effects of rising labor costs？ Answering these two questions requires a careful examination of both labor and investment inputs. In the face of rising labor costs, whether firms reduce employment and increase investment depends on their ability to transfer the increased wage costs. Thus, the direction of change in the capital-labor ratio depends on the respective directions of change in the labor and investment inputs. Therefore, the impact of rising labor costs on the capital-labor ratio is an open empirical question.
Using the annual surveys of industrial firms collected by the National Bureau of Statistics of China and manually collected urban minimum wage data from 2002 to 2011, this paper empirically examines the relationship between labor costs and the capital-labor ratio and the mechanism of this relationship. The results show that an increase in the minimum wage has a significant positive effect on the capital-labor ratio of manufacturing firms. For each 10% increase in the minimum wage, firms' capital-labor ratio increases by 2.0%, and this effect is more significant for firms with wage levels near the minimum wage. Second, inspired by the natural experiment of Card and Krueger (1994), this study exploits the minimum wage increase in Fujian province as a quasi-natural experiment, with firms affected by the increase as the treatment group and firms in geographically adjacent Guangdong province but unaffected by the increase as the control group. The robustness of the conclusions are verified using a difference-in-differences approach. The mechanism analysis shows that the minimum wage increase increases capital input and reduces labor input, providing strong evidence that firms replace labor with capital. Heterogeneity analysis shows that the impact of the minimum wage increase on the capital-labor ratio is concentrated in non-state-owned firms, low-wage firms and labor-intensive firms. Finally, this paper finds that with the minimum wage increase, the productivity and profit of firms also increase significantly. The reduction in production costs is the main factor in the increased profits, verifying the positive effect of replacing labor with capital.
This study makes several important contributions. First, it adds to the literature on the effects of minimum wage changes. Studies on the effects of minimum wage changes focus on firms' labor input and output, such as the number of employees, profit, export, productivity and innovation. From the factor substitution perspective, this paper differs from those studies by revealing that faced with rising labor costs, firms change their production and business activities. Second, by investigating firms' capital input, employment and performance, this paper provides strong evidence that enterprises replace labor with capital. This insight deepens understanding of firms' technological upgrades, innovation improvements and industrial structure transformation.
This paper also has important policy implications. First, although increasing labor costs decrease firms' employment and exports in the short term, they encourage firms to replace labor with capital, improving labor productivity. Hence, in the long run, increasing labor costs will eliminate Chinese firms' and industries' over reliance on cheap labor and improve firms' innovation ability and the upgrading of the industrial production structure. Second, the findings regarding the mechanism help clarify the trade-off between the minimum wage, capital-labor ratio and employment. The government should take relevant measures, such as reducing corporate taxes and fees, to alleviate firms' burdens, encouraging firms to increase capital input and realize technological upgrading.

China has accelerated its market-based legal reforms in recent years to prevent and defuse financial risks in its financial system. China's banking sector has established a relatively comprehensive market-based interest rate system using laws and regulations that have strengthened the decisive role of the market in controlling capital flow. Moreover, the China has relaxed restrictions on foreign investment and increased market competition in the banking sector. China has simultaneously improved banks' exit mechanism, canceled implicit government guarantees, and promoted the gradual establishment of a deposit insurance system (DIS) in building a legal risk-prevention mechanism for the banking sector. In 2015, China formally promulgated and implemented the “Regulations on Deposit Insurance.” In 2016, the deposit insurance rate was transitioned gradually from a fixed rate to a differential rate based on bank risk, which is consistent with market principles and protects depositors' interests. Therefore, we analyze the role of market-based and legal reforms in the financial sector to prevent and defuse financial risks, in addition to exploring the coordination effects between different reform measures.
We use a spatial model to compare the welfare effect of the DIS implementation in cases with and without implicit government guarantees. We focus on the impact of market competition on bank stability under the DIS. The model explores depositors' savings choices when the bank's stability is its private information. We analyze the market equilibrium with interbank interest rate competition and venture capital games. We find that the DIS can reduce banks' risk-taking behavior and performs better than implicit government guarantees. However, implicit government guarantees generate an adverse-selection problem. Although the guarantees can protect depositors, they also reduce depositors' requirements for bank stability and encourage banks to pursue high-risk and high-yield assets, which reduces their stability. A risk-adjusted premium DIS can effectively increase bank stability by linking insurance premiums to the bank's risk. The positive effect of the risk-adjusted premium DIS on bank stability and social welfare becomes more significant with more intensive competition in the market. When the market allows for free entry under the risk-adjusted premium DIS, intensified competition may cause inefficient banks to pursue high-yield assets in the short run, which reduces their stability. In the long run, high-risk banks will exit the market and more-efficient banks with low risk will enter and enjoy a sizable market share. As a consequence, the risk-adjusted premium DIS helps increase the banking sector's stability by protecting depositors' interests when their banks exit the market. Therefore, China should combine well-designed risk-adjusted premium DIS with policies that strengthen market competition and protect depositors' interests. This would reduce the potential cost for the government of preventing and defusing bank risk, which increases social welfare.
We contribute to the literature in three ways. First, we analyze the risk and welfare effects of the implementation of the DIS considering implicit government guarantees. Second, in contrast to the literature on the implementation effect of the DIS, we focus on the coordination between the DIS and deposit market competition. Our approach supplements the literature on DIS and policy coordination. Third, we use a spatial model to describe interbank competition and apply it to the deposit market with asymmetric information. We simultaneously consider free-market entry in the long run and explore the effects of market competition in both the short and long run.
Our conclusions have significant policy implications for accelerating the market-based reform of China's banking sector and improving the current DIS. In the long run, the China should adhere to and improve the market-based DIS in addition to maintaining the currently high level of deposit insurance coverage. Moreover, the China should improve risk measurement techniques, accurately and reasonably determine risk-adjusted premiums, and increase information disclosure to reduce information asymmetry. Competition policies should be coordinated with the DIS to improve policies and exit mechanisms to enhance the banking sector's overall stability. While improving the efficiency of market competition, the China can also better protect depositors' interests and maintain social stability.

Credit ratings play an important role in information transmission and valuation in the bond market. In recent years, credit rating problems have cropped up frequently. One such problem is that some debt issuers frequently switch rating agencies and get higher credit ratings after switching. In view of this rating agency switching phenomenon, exploring the following questions is worthwhile. What is the motivation and purpose of switching rating agencies？ What is the economic effect of switching rating agencies？
This paper explores the effect of switching rating agencies on the credit ratings, default risk and issuance cost of corporate bonds in the exchange market from 2008 to 2017. We exclude financial institutions and corporate bonds rated by foreign rating agencies. We also exclude 1,501 bonds rated by two or more rating agencies. The final sample includes 1,657 issuers, 4,017 corporate bonds and 17,217 observations.
The results show that an issuer's subsequent rating is significantly better after a rating agency switch. Through a series of robustness tests, such as the construction of difference-in-differences models and the use of instrumental variables to alleviate endogeneity problems, the conclusions hold. This paper further explores the moderating influence of industry competition and the credit rating access boundary on the relationship between issuers' switching rating agencies and the credit ratings of corporate bonds. The results show that when issuers or rating agencies face fierce competition, the positive effect of switching rating agencies is stronger; that is, industry competition intensifies both the rating shopping behavior of bond issuers and the rating catering behavior of rating agencies. The results also show that the positive effect of switching rating agencies is stronger when the credit rating is at the AA rating boundary. Finally, this paper examines the consequences of issuers switching rating agencies and finds that it reduces the financing costs of corporate bonds, increases the default risk of corporate bonds and reduces the operating performance of the issuers.
Studies typically focus on the three major rating agencies in the United States. However, China's rating market is quite different from that of the U. S. First, the U. S. has internationally influential rating agencies with strong international reputations, such as Standard & Poor's and Moody's. In contrast, the reputations of Chinese rating agencies are relatively low. Second, the U.S. rating market is monopolistic, whereas China's rating market is highly competitive. Third, U.S. investors pay a great deal of attention to the rating reports issued by rating agencies and use the ratings as an important basis for investment decisions. However, the market reputation mechanism is not established in China, so investors put less weight on ratings . Therefore, this study provides empirical evidence for understanding the rating market of China.
This study contributes to the literature in several ways. First, most studies focus on the economic consequences of switching audit firms (Azizkhani et al., 2018), whereas this paper focuses on the motivation for and economic consequences of switching rating agencies. Second, this paper supplements the studies on rating shopping by issuers and rating catering by rating agencies. This paper provides a new research perspective by studying the behavior of bond issuers. The results show that rating shopping by bond issuers can significantly increase the credit ratings of corporate bonds, providing a reference for regulatory authorities to improve the regulatory system.

The non-penalty regulation represented by inquiry letters has become an important front-line regulation, given the current emphasis on the function of stock exchange. Inquiry letter regulation focuses on the shortcomings of information disclosure and requires companies to provide supplementary explanations in a reply letter. The increasing frequency of inquiry letters has attracted the attention of the media, capital market intermediaries, and investors. Taxation stimulates market vitality and promotes economic development, so corporate tax behavior is a concern of both regulators and investors. China's stock exchanges have recently paid more attention to regulating corporate tax avoidance. However, few studies examine the relationship between China's inquiry letter regulation and corporate tax avoidance. Exploring the economic consequences of inquiry letters from the perspective of tax avoidance enriches research on both the effectiveness of non-penalty regulation and the factors influencing tax avoidance.
The impact of inquiry letters on tax avoidance is as follows. On the one hand, inquiry letters improve the quantity and quality of corporate information disclosure by attracting attention and thereby increasing the costs of tax avoidance and inhibiting management's motivation and ability to implement tax avoidance behavior. On the other hand, inquiry letters may increase marginal tax avoidance income while having little impact on marginal tax avoidance costs. In addition, rising regulatory pressure may compel management to employ more tax avoidance activities to improve the firm's profit after taxes and achieve short-term goals. Based on the aforementioned arguments, whether and how inquiry letter regulation influences tax avoidance behavior is a question that requires empirical analysis.
Based on an examination of Chinese A-share listed companies from 2013 to 2017, this paper finds that financial report inquiry letters restrain companies' tax avoidance behavior; the greater the total number of inquiry letters,the more inquiries for the same financial report, and the more questions in the financial report inquiry letter, the greater the reduction of tax avoidance behavior. Moreover, inquiry letters that address tax-related or research and development-related topics further decrease tax avoidance behavior. Furthermore, the regulatory effect of inquiry letters is even better for companies with lower degree of financing constraints and a higher intensity of tax administration. Overall, the non-penalty regulation of the financial report inquiry letter exhibits a certain degree of regulatory effectiveness.
This paper makes two major contributions to the literature. First, it contributes to the literature on the economic consequences of non-penalty regulation. Contemporaneous studies examine the regulatory effect of inquiry letters in terms of capital markets, external audits, earnings management, and management earnings forecasts. This paper, however, examines the effectiveness of non-penalty regulation from the perspective of tax avoidance by applying empirical evidence from Chinese markets, which supplements relevant research on international non-penalty regulation.Second, this paper enriches research on the determinants of corporate tax avoidance. Previous regulatory studies examine how tax authorities and enforcement influence companies' tax avoidance behavior; however, few investigate the impact of securities regulation, especially front-line stock exchange regulation, on corporate tax avoidance.
This study also has practical significance by extending the relevant research on the real effects of front-line stock exchange regulation. The effectiveness of inquiry letter regulation is affected by a company's financing constraints and the external regulatory environment. To improve the regulatory impact of inquiry letters, implementing continuous and accurate regulation, completing with follow-up regulatory measures, are necessary.

As insiders, senior executives have information advantages and are able to manage their firms' external information environment; therefore, investors, regulators, and markets pay close attention to their trading activities. Understanding the causes and consequences of executives' trading activities, especially their selling behavior, is of vital importance in developing healthy financial markets.
This question is approached in the literature through a focus on the role of internal governance, such as increasing equity concentration, increasing institutional holdings, restricting earnings management, and improving information disclosure. Few scholars explore the perspective of external governance. Short-selling behavior is an important external governance mechanism; therefore, we study how the short-selling mechanism influences executives' trading behavior.
The margin trading policy implemented in the Chinese A-share market since 2010 allows investors to short sell their stocks. The introduction of the short-selling mechanism facilitates the timely incorporation of negative information into stock prices, reduces information asymmetry, and improves market efficiency. Based on monthly data from A-share firms between January 2007 and December 2015, we use a difference-in-differences method to leverage the staggered expansion of the list of stocks allowed to be shorted by the policy as exogenous shocks to the efficiency of the underlying stocks. We also study whether managerial selling behavior is changed by this short-selling mechanism. Our results show that the introduction of the short-selling mechanism reduces managerial selling behavior. In particular, the percentage of shares sold by managers compared with firms' outstanding shares is reduced by 0.004% in the treatment group relative to the control group, which comprises about 22.22% of the average shares sold by managers. We also find that the short-selling mechanism mainly deters managers' speculative selling behavior to profit from trading on information advantages, but has no effect on their regular selling. In a cross-sectional analysis, we show that for smaller firms, firms with higher earnings smoothness, and non-state-owned firms, the short-selling mechanism has a larger effect. Furthermore, we examine the channels through which the short-selling mechanism affects managerial selling behavior and find that margin trading policies improve price efficiency and reduce profits from managerial selling. The literature shows that managers conceal negative information before they sell their shares. However, we do not find any evidence that this behavior is reduced by margin trading policies.
We contribute to the literature in the following ways. First, while most scholars analyze the role of internal governance on managerial trading activities, we complement the literature by focusing on the external governance role of the market. We find that the short-selling mechanism can reduce managerial selling and improve corporate governance. We not only provide a broader perspective for analyzing the influential factors on managerial trading activities, but also present supportive evidence that show executives profit from trading on their information advantages. Second, we classify managerial selling into two types of trading purpose: regular and speculative selling. While regular selling is based on the executives' routine adjustment of asset portfolios or liquidity needs, speculative selling occurs when executives trade on their information advantages. We show that the short-selling mechanism reduces only speculative selling. Finally, we present evidence for channels through which the short-selling mechanism affects managerial selling. Our results provide insights for supervising managerial trading activities.

Risk prevention is the eternal theme for the financial sector, which also makes systemic risk a major issue worth investigating at this stage. This paper provides a comprehensive and in-depth review on 272 articles published on top journals based on the perspectives of measurements, contagions and spillovers, driving factors, forecasting, macro-finance linkages, risk control policies and their effectiveness, and the developments of regulatory principles.
First, we summarize the definitions of systemic risk proposed in related literature and find that preventing and controlling systemic risk is essential for maintaining financial stability. Section 2 evaluates the exiting systemic risk measurements which are grouped based on the perspectives of portfolio analysis, tail dependence, joint default probabilities, network analysis, and composite indicators. We further comment on the merits and drawbacks of each category. As shown in section 3, studies on systemic risk contagion and spillover suggest that changes and shocks experienced by a single financial institution or market will quickly spread to other institutions and other markets through inter-sectoral linkages, thus triggering systemic crisis. Aside from theoretical analyses, we also document empirical studies on the contagion of systemic risk from three perspectives. In section 4, we review a large collection of literature to identify driving factors of systemic risk. One strand of literature looks at micro-level sources of systemic risk. Another strand of literature ascribes systemic risk to macro-level factors like macroeconomic status. Two strands of literature concerning about systemic risk forecasting are discussed in section 5. A family of papers aim to promote early warning system against systemic risk by employing methods such as signal extraction and logit regression. Alternatively, other studies try to utilize information from systemic risk series to predict corporate financial distresses and macroeconomic recessions. Then, this paper surveys the literature on macro-finance linkage in section 6, showing that there are mutual interactions between real economy and financial system. With advances in the research of this field, the “curse-of-dimensionality” problem in traditional models was circumvented with mixed-frequency methods. Based on an overview of the literature focusing on monetary, micro-prudential, and macro-prudential policies in section 7, we analyze how these policies reduce or drive financial risks and investigate the effectiveness of risk control policies. Furthermore, section 8 also relates to regulatory principles such as “too-big-to-fail”, “too-connected-to-fail”, “too-central-to-fail”, and so forth.
At last, with a coverage of the latest studies on climate finance, FinTech, and public emergencies, we look into the major research focuses which are derived from the risk characteristics of China during the transition to high-quality economy. This paper thereby provides references for constructing a comprehensive and multi-level financial risk prevention and control mechanism to firmly hold the bottom line of no systemic risk and enhance the high-quality economic and social development.