Cross-border finance substantially affects global economic growth and financial stability in the open economy, which is a crucial topic with academic and practical implications. After the 2008 Financial Crisis, the global economic and financial landscape underwent profound changes with new trends emerging in the driving forces and changing patterns of cross-border finance. In the current complex situation, clarifying the rules and features of global cross-border finance could improve China's “two markets and two resources” policy and prevent external financial risks. This paper examines the key driving factors and changing patterns of global cross-border finance after 2008, analyzes the development trend of China's cross-border finance from an international perspective, and proposes suggestions for future prospects.
This paper shows that after 2008, the main driving forces of global cross-border finance were the slowdown of global economic growth, increased imbalance in regional economic development, declined current account deficits, loosened global liquidity, narrowed risk-free rate of return, and growing “search for yield” motivation. In addition, the global financial structure changed massively and the share of nonbank financial institutions rose significantly. Regulations on cross-border capital flows became stricter, foreign direct investment (FDI) inspections were enhanced significantly, and banks' cross-border regulations tightened. The patterns of cross-border finance changed dramatically. The scale of cross-border capital flows declined and the structure of cross-border finance changed with a decreasing share of FDI, while the proportion of portfolio investments and other investments increased. The direction of cross-border finance diverged, with FDI mainly flowing to emerging economies, while developed economies were still the main destination for portfolio investments and other investments. Nonbank financial institutions were playing an increasingly important role in cross-border finance and the US dollar was still the dominant currency. Since then, the features of cross-border financial risks have changed, with portfolio investment having increasing impacts on financial stability, the vulnerability of the nonbank sector having increased, and currency mismatches remaining prominent in several emerging markets. The banking sector responds to low interest rates by optimizing the allocation of cross-border assets and liabilities, expanding noninterest income, and enhancing effective cost-control measures. Banks obtain cross-border customers through digital channels and improve cross-border operating efficiency through digital technologies. Furthermore, the stability of banks is improved by fewer complicated and interlinked businesses.
With the acceleration of economic transformation and opening-up, China's cross-border finance activities have a greater influence on the balance of international payments with a growing share in global cross-border capital flows. China's international investment assets are more balanced, with FDI rising rapidly and portfolio investments and other investments increasing steadily. China's international investment liabilities are also growing much faster, but FDI still occupies a dominant share of cross-border finance while the proportion of portfolio investments increases significantly. With the growing volume of cross-border finance, the increased complexity and risk are mainly reflected in the increasing pressure of FDI inspections, the rapid increase in portfolio investment liabilities, and the growing compliance risk of banks' cross-border businesses.
In the future, developing cross-border finance in the context of China's construction of a new development pattern, in which the domestic cycle is at the center with dual domestic and international cycles promoting each other, will be of great importance. China should achieve its goals of serving the real economy and promoting trade and investment facilitation. The formation of a cross-border capital structure matches the features of China's economic and financial development. China should also take advantage of the pull effects of FDI, especially in the areas of high-tech manufacturing and producer services. In addition, China should balance the relationship between opening-up and risk by using the exchange rate as an “automatic stabilizer” for the macro-control system and the international balance of payment, strengthen the monitoring of short-term foreign debts and the trading behaviors of investment entities, enhance the comparative advantages of the banking sector in cross-border finance, and develop new patterns through bank internationalization.

China's economic development since the reform and opening-up in 1978 is remarkable. However, the growth of China's economic development shows slowing trends over the past decade because of the triple pressure of shrinking demand, supply shocks, and weakening expectations. Following the impact of the COVID-19 pandemic, changes have accelerated and China's external environment is now more complex, severe, and uncertain. How to interpret China's economic growth over the past 40 years and the changes in total factor productivity (TFP) and its driving factors? Answering these questions is of great practical significance. Many studies explore TFP. For example, macro-level studies are generally based on the classical Solow residual method to estimate TFP. In these studies, any unobservable factors affecting economic growth can be attributed to TFP; therefore, the classical Solow residual is like a “black box.” It is impossible to accurately understand the determinants of TFP theoretically; thus, there are misunderstandings in the understanding of TFP, which also leads to differences in understanding changes in TFP. Studies of the decomposition of TFP in China lack a unified theoretical model and especially a general equilibrium model of the input-output network structure.
Based on the basic framework of Baqaee and Farhi (2020), this paper constructs a general equilibrium model of a noncompetitive input-output network structure with imported intermediate inputs and distortion factors suitable for China's characteristics. The paper then proposes a new method for calculating and decomposing total productivity, which empirically calculates and decomposes changes in TFP. This paper makes two marginal contributions to the literature. First, the theoretical model of the production network structure is expanded. The general Baqaee and Farhi (2020) model is based on the general equilibrium framework of a production network structure with markup. In addition to the markup caused by monopoly power, the structure of China's tax system with indirect tax as the main body obviously differs from that of the United States with direct tax as the main body. Therefore, building a general equilibrium model for a production network structure that considers the impact mechanism of indirect tax is more in line with China's reality. Second, this paper enriches methods for calculating and decomposing TFP. Under the general equilibrium framework, this paper derives a new unified measurement framework for economic growth accounting and TFP decomposition, considers the impact mechanism of terms of trade, and expands the decomposition method for TFP.
The results show that capital and TFP are the main sources of China's economic growth and that there is an obvious “see-saw” between the two, but the contribution of labor is relatively small and the rate of contribution shows a downward trend. The change to pure technical efficiency is the main contributor to changes in TFP; however, it shows a downward trend and 2007 is a watershed year. Following the gradual loss of the late development advantage of technology imitation, the speed of technological progress also shows a gradual decline since 2007. After 2012, however, China's pure technical efficiency improves gradually under the influence of the innovation-driven development strategy. The contribution of the change in distortion factor allocation efficiency for TFP changes from positive to negative, while the contribution of the change in the terms of trade for imported intermediate products to TFP changes from negative to positive. Against the background of the establishment of a socialist market economic system and China's entry into the World Trade Organization, the change in resource allocation efficiency promotes TFP. From 2007 to 2012, however, following the global financial crisis and China's “four-trillion investment plan,” distortion factor allocation efficiency deteriorated in the short term and pulled down TFP, but its negative impact decreased after 2012.
The following three conclusions are based on these results. First, TFP is not only the main source of improving China's economic growth in the future but also the key to achieving high-quality development. Following the decline in the return on capital caused by the decreasing scale of marginal returns and resource and environmental constraints, it will be difficult to sustain large-scale investments in the future and the contribution of capital to economic growth will decline. Second, the technological progress brought by independent innovation in the future is the main source of TFP improvement. Third, improving the efficiency of resource allocation is still an important source for improving TFP and achieving high-quality development. The practical experience of China's reform and opening-up confirms the important role of improving technical and factor allocation efficiency in rapid economic growth.

Foreign direct investment (FDI) in mainland China has grown rapidly in recent years. According to data released by the State Administration of Foreign Exchange, mainland China's inward (IFDI) and outward FDI (OFDI) stocks comprised more than 50% and 25% of mainland China's overseas liabilities and assets, respectively. However, the current statistics only cover the bilateral direct investment announced by statistical agencies and do not include direct investments transshipped through offshore financial centers or returned as round-tripping investments. Direct investments related to the offshore market will distort the current account statistics in international investment positions. Accurate accounting and measurement of mainland China's overseas IFDI and OFDI will help to study issues such as capital outflows and wealth inequality, in addition to investigating mainland China's current account imbalances and intertemporal optimization.
We infer two characteristics of rapid investment growth. First, more than 70% of mainland China's IFDI and OFDI positions come from or flow to tax havens, such as Hong Kong, the Cayman Islands, and the British Virgin Islands. Second, the ultimate sources of FDI funds from some offshore financial centers, in addition to developed economies such as Europe, the United States, Japan, and South Korea, are round-tripping investments from mainland China. That is, funds flow out of mainland China as OFDI and finally return to mainland China as IFDI instead of actual international investments.
These two structural characteristics lead to two issues. On the one hand, the current statistical principles are based on a “residence” perspective rather than the “domicile” perspectiveAvdjiev et al. (2018) denote “Domicile” as a permanent residence in consolidate group-level, usually the place of ultimate origin and permanent place where a corporate group's headquarters is located. of actual capital flows and show differences in their direct investment statistics. While the former facilitates the measurement of direct cross-border transactions between economies and has been used in international practice for many years, this measurement is unable to reflect the true flow of investments because the role of offshore financial centers in overseas investments has become increasingly prominent.
On the other hand, direct investments transshipped through offshore financial centers do not directly serve the local real economy. They are a means for companies to evade taxation, seek overseas financing, and even transfer assets overseas, which can easily cause national tax losses and capital flight. Moreover, the accumulation of offshore assets represents the rapid expansion of high wealth inequality.
However, while the domicile perspective in censuses helps correctly understand the actual stock of IFDI and OFDI in mainland China, valid data for reference are lacking because of statistical limitations. First, we find discrepancies between the IFDI and OFDI data collected by different agencies with no unified benchmark. Second, many economies, including mainland China, do not provide statistical data for the ultimate investment sources. Only a few OECD economies provide these data, such as the United States and the European Union. Third, large mainland Chinese Internet companies usually use a variable interest entity (VIE) structure for overseas listings, which facilitates the common phenomenon of round-tripping investments or capital appreciation in FDI. However, the available data cannot measure this phenomenon, which has not yet been analyzed in detail. Therefore, we review the literature on the methods for correcting the statistical bias from direct investment positions caused by offshore financial centers and compare different official statistical data sets for direct investment positions in detail. We then introduce the Orbis database as an important supplement based on the Coordinated Direct Investment Survey (CDIS) data set from the International Monetary Fund to measure mainland China's real IFDI and OFDI stock from the domicile perspective. Considering the motives for direct investment according to tax avoidance and overseas listing via VIE structures, respectively, we find that:(1) By adjusting FDI for tax avoidance purposes, IFDI from offshore financial centers was reduced, but more than 80% were round-tripping investments. In contrast, other major economies do not experience this obvious round-tripping investment phenomenon.(2) After considering the impact of overseas listed investments via the VIE structure, the proportion of round-tripping investments increases to nearly 37%, with a magnitude of about US $1 trillion, of which US $167.7 billion is contributed by overseas listed companies with a VIE structure. Among the top 20 counterparties of mainland China's IFDI, the proportion of offshore financial centers drops sharply from 70% to 27%. (3) The adjustment of mainland China's OFDI stock is based on mirror data. After adopting the domicile perspective, mainland China's OFDI stock is US $1.4 trillion, which is 10% higher than the CDIS value from the residence perspective.
In general, we find that investment flows to tax havens are reduced, while the flows to real economies increase, which reveals that foreign investments are transferred through tax havens. This is more obvious in mainland China than in other major economies. In particular, among the tax havens, the British Virgin Islands are the most important destination of mainland China's OFDI, accounting for about a quarter of ultimate OFDI stock. This is mainly because the British Virgin Islands are the most important place for natural person shareholders to retain capital in offshore companies or trusts.

In the current efforts to achieve “carbon peak” and “carbon neutral,” ESG investment is an increasingly important standard for measuring the sustainability of commercial banks. Thus, ESG investment can be considered a further extension of corporate social responsibility. Several studies on related topics enrich our understanding of the motives and economic consequences of corporate social responsibility; however, these studies still have several drawbacks. First, most studies are concerned with nonfinancial companies and direct studies of the banking sector are rare. Second, among the small number of bank-related studies, most explore the relationship between bank social responsibility and financial performance. However, as an important means of reputation management, ESG investment requires banks to integrate ESG principles into their daily business, which has multidimensional impacts on bank performance, especially bank liquidity creation.
Liquidity creation is one of the core functions of modern commercial banks. Moderate liquidity creation improves market financing conditions, which promotes high-quality development. First, banks can create liquidity on their balance sheets by converting their liquid liabilities into illiquid assets. Second, banks can create off-balance sheet liquidity by providing customers with credit commitments. Based on the liquidity creation measurement method proposed by Berger and Bouwman (2009), many studies explore the factors influencing liquidity creation, but no studies systematically analyze the relationship between ESG investment and bank liquidity creation. Theoretically, ESG investment may affect liquidity creation in two opposite ways. On the one hand, as a means of reputation management, ESG investment may promote liquidity creation through a reputation spillover effect. On the other hand, a reputation constraint effect associated with ESG investment may suppress liquidity creation.
Based on the panel data from 36 listed banks in China from 2009Q1 to 2020Q2, this paper constructs liquidity creation indicators according to Berger and Bouwman (2009), and uses ESG rating data from Sino-Securities Index to empirically examine the relationship between ESG investment and bank liquidity creation. Economic policy uncertainty is also introduced into our model to explore how it affects the relationship between ESG investment and liquidity creation. The main results of this paper are as follows. First, the reputation spillover effect of ESG investment is greater than the reputation constraint effect; therefore, ESG investment promotes overall liquidity creation, but its impact has certain structural differences. From the perspective of the liquidity creation structure, ESG investment can promote bank liquidity creation from the asset and liability sides while suppressing bank off-balance sheet liquidity creation. From the perspective of the ESG investment structure, corporate governance investment can promote liquidity creation, while environmental protection investment and social responsibility investment can suppress liquidity creation. Based on the heterogeneity analysis, the positive impact of ESG investment on liquidity creation is especially distinct in local banks and capital-deficient banks. Second, according to the intermediary effect analysis, the reputation spillover effect of ESG investment promotes liquidity creation through the “profit” channel, which improves banks' profitability and reduces income diversification, and through the “risk” channel, which increases banks' risk tolerance. Third, economic policy uncertainty can magnify the reputation spillover effect of ESG investment and strengthen its positive impact on bank liquidity creation. From the perspective of the ESG investment structure, economic policy uncertainty will strengthen the positive impact of corporate governance investment on liquidity creation and deepen the negative impact of environmental protection investment and social responsibility investment on bank liquidity creation. This paper provides important policy inspiration to promote the development of ESG Investment and realize high-quality economic development.
This paper makes three marginal contributions to the literature. First, this paper systematically examines the impact of ESG investment on bank liquidity creation, which enriches the relevant literature on the relationship between ESG investment and bank performance. Second, this paper reveals how ESG investment affects bank liquidity creation. Based on the intermediary effect test method proposed by Baron and Kenny (1986), this paper examines whether ESG investment promotes liquidity creation through the “profit” and “risk” channels. Third, against the current background of increasing economic policy uncertainty, this paper further introduces economic policy uncertainty into the model and examines its asymmetric impact on the relationship between ESG investment and bank liquidity creation, providing relevant empirical evidence.

Programmatic documents such as the “Report to the 19th National Congress of the Communist Party of China” contain important theses on entrepreneurship. However, the aging of China's population is becoming an increasingly serious economic issue. A national strategy for actively responding to this demographic trend is present in the 14th Five-Year Plan. Accordingly, exploring the impact of population aging on regional levels of entrepreneurship has academic value and policy significance.
City-level entrepreneurial data are obtained from Qixinbao and city-level population aging data are obtained from a population extrapolation model. Family planning policy is used as an instrumental variable to establish a causal identification between aging and entrepreneurship. The analysis shows that every 1% increase in the dependency ratio of the elderly population reduces the number of entrepreneurial enterprises by about 10%, which is an economically significant decrease. In addition, this paper introduces the use of registered capital to classify the size of enterprises and finds that population aging mainly affects mid-sized enterprises. The paper also conducts some in-depth mechanism tests and finds two mechanisms driving the relationship between an aging population and entrepreneurship: the pension pressure mechanism within the family and the rank effect mechanism outside the family.
The pension pressure mechanism occurs because an aging population increases the pressure on potential entrepreneurs to support elderly family members; as family members spend more time and energy taking care of the elderly, family economic pressure increases. In such scenarios, family members avoid engaging in high-risk activities such as entrepreneurship. This paper provides evidence of this mechanism at both the macro and micro levels. At the macro level, the paper shows that in cities with lower levels of medical care or worse insurance coverage, the impact of aging on the level of entrepreneurship is stronger. At the micro level, this paper uses the household finance survey data of CHIP2013 to show that the pension pressure within a family can inhibit the entrepreneurial behavior of family members. Furthermore, if the elderly family members have insurance, the pension pressure within the family is to a certain extent alleviated.
The rank effect mechanism is related to the fact that entrepreneurship requires both youth and entrepreneurial resources. In areas with aging populations, more important positions are occupied by older individuals, and it is difficult for young people to obtain important positions and accumulate entrepreneurial resources, thus reducing the level of entrepreneurship. This paper provides evidence of this mechanism at both the macro and micro levels. At the macro level, the paper finds that in cities with higher proportions of state-owned units,the inhibiting effect of aging on the level of entrepreneurship is stronger. In addition, physical capital-intensive industries are more strongly affected by the rank effect, and aging has a greater impact on the level of entrepreneurship in these industries. At the micro level, after controlling for pension pressure within families, the paper shows that the overall age of a city's population has a significant inhibiting effect on the entrepreneurial behavior of family members, and we links this observation to the rank effect mechanism.
The innovations of this paper can be summarized as follows. First, a big data set is used to describe the entrepreneurial activities in all of the cities and the aging data are obtained using a population extrapolation model. This is therefore the first study to investigate the relationship between population aging and entrepreneurship at the city level in China. Second, this paper proposes and examines two new parallel mechanisms (the pension pressure mechanism within the family and the rank effect mechanism outside the family). Third, this paper uses family planning policy as an instrumental variable for population aging, overcoming the endogeneity problems that may exist in this study design.
The findings have certain policy implications. First, to release entrepreneurial energy and drive high-quality economic growth, China should continue to ease its population policies. Second, to mitigate the impact of an aging population on entrepreneurship, China needs to continuously improve access to medical services and insurance coverage.

As a direct financing tool for companies, corporate bonds are an important aspect of deepening financial system reform and building a multilevel capital market. Establishing a credit rating system helps to classify issuers' credit risk using rating symbols, evaluate their solvency, provide incremental information to the bond market, and reduce information asymmetry. However, whether credit rating agencies (CRAs) can transfer information to the bond market carefully and objectively is still controversial. On the one hand, the network of interests between CRAs and issuers leads to a decrease in the information content of credit ratings. On the other hand, CRAs are constrained by their reputations and will forgo their short-term gains in favor of communicating true information about the bond market. Therefore, CRAs choose to publish credit rating downgrades when they believe that the negative information about issuers credibly damages their reputation.
Financial restatements by companies indicating their misrepresentation of prior years' financial information intuitively and clearly illustrate the lack of credibility of the restated financial reports. This provides a unique setting in which to study whether credit rating adjustments reflect issuers' true financial information. We distinguish between the years of the financial misstatement and restatement announcements. If the CRA downgrades the credit rating in the financial misstatement year based on the issuer's private information, the result can prove that the credit rating adjustment reflects the issuer's true financial information. We use data from Chinese A-share listed companies with issuer-level long-term credit ratings and find that the rating agencies significantly downgrade issuers' credit ratings in financial misstatement years, rather than in restatement announcement years. This result indicates that credit rating downgrades reflect issuers' real financial information prospectively. Our results hold in the presence of alleviating endogenous concerns and applying other robustness tests. In additional tests, when the issuer's financial misstatement involves their earnings, their credit rating is downgraded more fiercely. In a channel test, we find that protecting the reputation of the credit agency is the main channel by which credit rating adjustments reflect issuers' real financial information. We further find that credit rating downgrades result in investors' negative reactions to stock prices.
We contribute to the literature in the following ways. First, we use a unique setting in which issuers' financial misstatements may be restated in subsequent years. Thus, we discuss the behavior of CRAs in financial misstatement years. The results support the effectiveness of credit ratings. Cheng and Subramanyam (2008) and Bonsall IV et al. (2018) focus on the impact of issuers' public information in their credit rating assessments. We still do not know how the CRAs react to private information because of the lack of private information data. Following previous studies, we find that the credit rating adjustments include the issuers' real financial information obtained by CRAs. This finding indicates that CRAs transfer negative private information to the bond market through credit rating downgrades, which also complements findings in the literature for the validity of credit ratings from an ex post facto perspective. Second, we divide financial misstatements into earnings and non-earnings misstatements and find that the issuers' credit ratings are downgraded to a greater extent in the earnings misstatement year. This finding indicates that CRAs pay more attention to financial information related to earnings, which provides insight into the role of financial information in credit rating assessments. Third, we find that in the institutional context of rating inflation in the Chinese bond market, CRAs adjust credit ratings according to issuers' real financial information in consideration of their own reputation. Our finding enriches the literature on the mechanism of the impact of enterprise financial information quality on credit ratings and identifies the behavioral motivation of CRAs to adjust their credit ratings for the Chinese bond market.
Our findings should be of interest to regulators in other emerging economies attempting to suppress rating inflations and improve their bond market efficiency. First, reputation is one of CRAs' most important qualities; thus, they will adopt more stringent rating standards when considering the credibility of their reputational costs. It is necessary for regulators to increase their penalty for improper CRA ratings through the improvement of the relevant institutional systems and increase the reputational costs for CRAs. Second, CRAs should build their competitive advantages by establishing a brand effect with high-quality ratings. Meanwhile, CRAs should expand other revenue channels to get rid of their dependence on revenue from their credit ratings. Third, issuers should strive to improve their corporate fundamentals and value the role that high-quality financial information plays in improving their credit ratings and reducing their corporate bond financing costs.

In recent years, surging labor costs in China, accompanied by the erosion of the demographic bonus, have received vast attention from researchers. Studies underline the effects of rising labor costs on firms' performance from the perspectives of technological innovation, factor substitution, labor productivity, wage stickiness, etc. The roles of labor supply, labor quality and human capital in economic development and production efficiency are also amply discussed. However, the relationship between labor costs and asset prices in the Chinese A-share market is rarely considered in the literature.
There are many studies of the relationship between labor and stock prices in the European and U.S. markets. However, findings from developed markets are not applicable to the Chinese market because of the remarkable distinctions between their market microstructures.
Considering China's rising labor costs and structural transformation of enterprises, we believe it is necessary to examine the relationship between China's labor market and asset prices from a micro-perspective, and more importantly, to analyze in depth whether there are differences in the pricing effectiveness of labor leverage and its mechanism in the Chinese and U.S. markets. If there are differences, the underlying causes of the differences require exploration. Exploring these issues can provide an important guide for the pricing mechanism of China's A-share market, the rational allocation of production factors, the transformation of corporate growth and the optimization and upgrading of corporate production structure.
From the wage stickiness perspective of Belo et al. (2014), we examine the relationship between micro labor markets and cross-sectional stock returns in China and explore the pricing power of labor leverage in the A-share market. Our empirical results show that firms with low labor leverage outperform firms with high labor leverage, and that the labor leverage discount remains stable after controlling other relevant variables. Furthermore, we explore the pricing performance of labor leverage in different economic states. The results show that the pricing power of labor leverage is heterogeneous; that is, the negative returns predictability of labor leverage is more profound in an economic downturn. Finally, we further explore the mechanisms in the pricing power of labor leverage relative to two sources of risk, productivity shocks and wage shocks. The results show that labor leverage has a significant positive impact on stock returns through productivity shocks on the one hand and a significant negative impact through wage shocks on the other. The latter effect is significantly stronger than the former, and their relative importance depends on the technology level of listed companies.
Our contributions can be summarized as follows. First, we uncover a pricing factor from the factor endowments perspective: labor leverage. This differs from mainstream asset pricing that focuses on financial information or operating performance. We examine the pricing effectiveness of labor leverage in light of its relative importance as a factor of production and its relative role in developing countries with low levels of technology and capital, while also considering the Chinese context and the significant differences in the labor shares of China and the United States. Second, compared with the positive pricing effect of labor leverage in the U.S. market (Donangelo et al., 2019), this paper finds that labor leverage has a significant negative pricing effect on cross-sectional returns in the Chinese A-share market. The mechanism by which labor leverage plays a dominant role also differs significantly from that in the U.S. market, mainly because of the different technology levels of listed companies in the two countries. The related results enrich explanation of the labor leverage mechanism, further improving the theory of labor factor pricing and providing a theoretical basis for China and other developing countries to rely on the technological level of micro enterprises to adjust the industrial structure of the economy and promote high-level economic development. Third, we examine the pricing effectiveness of labor leverage at various stages of the economic cycle. The relevant findings help clarify the differences in the stage characteristics and mechanisms of labor leverage shocks in different periods and provide an empirical basis for the formulation and adjustment of labor-related policies.

During his visits to Central and Southeast Asia in 2013, Chinese President Xi Jinping proposed the Silk Road Economic Belt and the 21st Century Maritime Silk Road, which are together now referred to as the Belt and Road Initiative. The goal of this initiative is to strengthen infrastructure connectivity, promote the orderly and free flow of economic factors, a highly efficient allocation of resources, and the deep integration of markets. The Belt and Road Initiative provides strong impetus for economic transformation and upgrading. Hence, academic and practical circles quickly began to explore the impact of the Belt and Road Initiative on the behavior of micro-enterprises. In this paper, we investigate whether the Belt and Road Initiative has an impact on the corporate bond market.
Theoretically, the Belt and Road Initiative may imply both benefits and risks for the corporate bond market. For example, the implementation of the Belt and Road Initiative reduces the corporate bond yield spreads of supported firms for the following reasons. To make progress on the Belt and Road construction, Chinese governments tend to provide financial subsidies or tax preferences for supported firms, which can directly reduce their default risk. With the in-depth development of the Belt and Road Initiative, the business environment of the supported firms will simultaneously continue to improve and the efficiency of resource allocation is expected to improve further. With the strong support of government policies, bond investors face lower default risk and choose to demand relatively low risk compensation from supported firms. Additionally, the Belt and Road Initiative can improve the information disclosure quality of supported firms as it develops. Benefiting greatly from the reduction of information asymmetry between supported firms and outsiders, the bond yield spreads of supported firms are expected to decrease.
Another perspective is that the implementation of the Belt and Road Initiative will increase the corporate bond yield spreads of supported firms. From the perspective of the external environment, the existence of credit risk, legal risk, sovereignty disputes, and other problems may make supported firms' bids to “go global” fail to achieve the expected results. From the perspective of internal operations, the Belt and Road projects focus on basic investments and involve large capital investments and a low rate of return. Therefore, there are several uncertainties for Belt and Road investments. Bond investors may think that the corporate bonds issued by supported firms have high default risk and thus demand high-risk compensation.
Based on the above analyses, this paper regards the Belt and Road Initiative as a quasi-natural experiment and uses a difference-in-differences model to investigate the impact of the Belt and Road Initiative on corporate bond yield spreads. The empirical results show that the Belt and Road Initiative can significantly reduce the bond yield spreads of supported firms. Analyzing the reaction of the bond market, we find that supported firms have higher CARs for bonds after the Belt and Road Initiative. The channel analysis suggests that the Belt and Road Initiative decreases bond yield spreads through both resource and information effects. Specifically, supported firms receive more government subsidies and stronger support for tax preferences. Supported firms are also associated with a decrease in information asymmetry after the Belt and Road Initiative. Exploiting cross-sectional variation, we find that the negative effect of the Belt and Road Initiative on bond yield spreads is more pronounced for firms located in key industries or in key provinces. A further analysis shows that the Belt and Road Initiative can also reduce the issue price of corporate bonds in the primary market. Regarding nonprice terms, we conclude that after the implementation of the Belt and Road Initiative, supported firms are less likely to be subject to collateral terms and tend to have less restrictive covenants.
Compared with the literature, the three main contributions of this paper are as follows. First, this paper examines the effectiveness of the Belt and Road Initiative from the perspective of corporate bond yield spreads. The findings enrich the relevant literature on the consequences of the Belt and Road Initiative on micro-enterprises' financing behaviors and provides a theoretical basis and practical reference for Belt and Road policies at the bond level. Second, this paper echoes the relevant literature on policy support to provide a reference path for the government to better guide the development of enterprises with a “visible hand.” Third, this paper contributes to the factor influencing bond credit spreads by innovatively explaining the changes in corporate bond credit spreads from the perspective of the Belt and Road Initiative, which enriches the literature on macroeconomic policy and bond credit spreads.

“Financing difficulties and high financing costs” are not only important factors hindering the development of private economy in China, but are also realistic, inevitable problems in the current stage of the transformation of the Chinese economy. In recent years, Chinese government departments have been committed to fostering the construction of a market system to solve private enterprises' financing problems. Much effort has been made to establish a multi-level capital market, develop fintech, and standardize and simplify investment and financing procedures to expand financing channels for private enterprises and help them overcome their financial constraints to transformation and upgrading. However, the design of a formal system requires several preliminary demonstrations and its specific implementation depends on many factors, such as a good business environment and markets, and relevant practitioners' professionalism. Achieving systematic improvement in these factors quickly is usually difficult because it generally takes a long time for the relevant systems to be formulated and then implemented.We explore whether there are any supplementary mechanisms other than the formal financial system that could be used to quickly respond to and effectively ease private enterprises' financing constraints.
Accordingly, we use a sample of private listed enterprises between 2008 and 2017 to explore whether private companies' membership of regional chambers of commerce approved by the Chinese government can help ease their financing constraints. The results suggest that membership of a regional chamber of commerce significantly alleviates enterprises' corporate financing constraints. The results remain robust after using instrumental variables and propensity score matching. A mechanism test shows that joining the regional merchant guild helps to expand member enterprises' relationship network and improve their market bargaining power. Specifically, regional merchant guilds can help members to obtain bank loans and improve their trade credit level in economic transactions. Furthermore, the effect of joining regional chambers of commerce on alleviating financing constraints is more obvious for small member enterprises with weaker market bargaining power and those facing financial difficulties. In addition, when a shock occurs to the local credit environment, the regional chamber of commerce can partly offset the negative impact of the shock on corporate financing constraints. Finally, chambers of commerce have a stronger positive effect on their members' financing constraints in regions with lower marketization, which indicates that chambers of commerce can serve as a supplementary mechanism to the free market system.
We contribute to the literature in several ways. First, we provide evidence from a corporate finance perspective to boost the relevant research literature on Chinese regional chambers of commerce. In China, it is very common for entrepreneurs to jointly establish regional chambers of commerce, but empirical studies on regional chambers of commerce and corporate finance are relatively rare. We use a large sample of Chinese private enterprises in an empirical analysis that confirms that regional chambers of commerce help private enterprises to obtain financial support. This finding supplements the literature and also provides a new perspective for the empirical development of corporate finance.
Second, our enterprise-level analysis enriches the literature related to the economic impact of traditional Chinese culture on modern business practices. Regional chambers of commerce are a contemporary practice in the traditional merchant guild culture. Du et al. (2015) and Kanagaretnam et al. (2019) show that the historical merchant guild culture can help reduce the agency cost of modern enterprises and improve their corporate social responsibility. We use the unique perspective of regional chambers of commerce in the modern commercial market to supplement the empirical evidence to generate more comprehensive insights into how cultural traditions affect the development of modern enterprises.
Third, we expand the literature related to Chinese private enterprises' financing constraints and provide new policy ideas for solving private enterprises' financing problems during the transition stages of China's economy. As a type of social organization approved by government departments, we find that regional chambers of commerce are very helpful in alleviating private enterprises' financing problems. This result not only enriches the relevant literature on alleviating private enterprises' financing constraints, but also provides a new perspective outside of the financial system to help government departments develop policies that address private enterprises' problems of “financing difficulties and high financing costs.”

According to the behavioral finance theory of limited attention, individuals effectively pay attention only to limited information (Kahneman, 1973). Investors' ability to collect, process, and analyze stock market information has a heavy cost. Thus, firms' stock prices respond slowly to the disclosure of new information about related firms.Firms' previous stock returns can predict the future stock returns of similar firms. These information spillovers in the US stock market are validated in the literature using a range of measures of the economic links between firms. Compared with the US stock market, China's A-share stock market has lower market validity, more retail investors, and higher turnover rates. Therefore, China's stock market displays different characteristics to developed markets.It's important to understand the pricing mechanism for information from economically linked companies in China's stock market. However, studies of China's stock market mainly focus on the momentum and reversal effects of individual stocks and rarely consider the momentum spillover effect among various economically linked companies. Unanswered empirical questions include whether economic momentum, such as industry, geographic, supply chain, and technological momenta, exist in China's stock market, whether such momentum has predictive power and the period of such prediction.
We exploit economic momentum, including industry, geographic, supply chain, and technological momenta, to compare their predictive power and prediction periods. We use data for China's A-share listed companies from 2008 to 2017 to construct these four types of economic factors and use Cohen and Frazzini's (2008) regression model to empirically test the return prediction ability of these economic factors. We further select technological momentum, which presents unique characteristic of China's stock market, to explore the internal mechanism. First, we find that the prediction period for these economic factors in China's stock market is shorter. Only industry momentum is significant at the monthly level, while the other economic correlation factors cannot predict the monthly return. The technological, geographic, and customer momenta are significant at the weekly level, but when all economic factors are controlled simultaneously, technological momentum shows the most significant predictive power. Compared with the results of Lee et al. (2019), the technological momentum in China's stock market has a shorter prediction period. Next, we explore this unique characteristic of technological momentum further and find that it can predict 1-3 weeks of the focal firm's future stock returns. A long-short strategy based on this effect yields a weekly excess return of 0.16% (yearly, 8.67%). The current fundamentals (SUE) of technologically linked firms also predicts the focal firm's future fundamentals (SUE), which suggests that the technological spillover effect exists in Chinese firms. A mechanism test shows that the short forecast period for technological factor in China's stock market may be attributed to a large number of retail investors with a gambling mentality, who tend to “buy the winners” and “sell the losers,” and thus accelerate the process of incorporating technological information into firms' stock prices. Third, by selecting the proxy variables of limited attention and market friction, we further reveal the internal mechanism for technological momentum and prove that it emerges from investors' mispricing behavior. Finally, we find that technological momentum is stronger in state-owned enterprises and after the promulgation of China's National Patent Development Strategy (2011-2020) in 2010.
Our results contribute to the literature in three ways. First, we contribute to the Chinese asset pricing literature by observing four types of economic momentum in China's stock market and comparing their predictive power and prediction period on weekly and monthly bases. Second, we explore the mechanisms underlying China's stock market momentum and find that retail investors may be the main driver, which contributes to the literature on the momentum mechanism. Finally, we enrich the empirical literature on limited attention. Previous studies of limited attention have mainly explored the diffusion of industry and individual stock information. We use patent information to directly test the predictive power of information complexity on stock prices, which helps explain the theory of limited attention.

Many studies explore the role of media as an information intermediary and corporate monitor in the capital market. However, studies increasingly show that the media's lack of objectivity and independence can undermine their normal functions. In addition, studies mainly focus on the economic consequences and restrictive factors of news reporting and ignore its production process in which journalists write and compile news articles. The prerequisite for high-quality news articles is that journalists should obtain sufficient information from society and then analyze and interpret their findings accurately and promptly. Therefore, the types of information source channels and their effectiveness are worthy of in-depth discussion.
Direct communication with firm managers should be one of the most valuable information sources for financial journalists. However, it is not clear whether journalists can improve the quality of their reporting through this activity. On the one hand, journalists may obtain crucial information and publish more accurate news reports with higher information content, which is called the “information discovery hypothesis”. On the other hand, journalists may alter the tone of their news reports to satisfy the needs of firm managers, leading to more optimistic tone and lower information content, which is called the “reporting bias hypothesis”.
China's special institutional background provides an ideal setting for our study. The Shenzhen Stock Exchange requires listed companies to increase communication with investors, analysts, media, and other market participants through investor relations activities. Using a sample of journalists from prestigious media outlets who visited listed companies from 2007 to 2019 and implementing a difference-in-differences method, we examine whether direct communication between media journalists and firm managers affects the quality of news reporting. The site visit data are obtained from the Corporate Site Visit Database (CSVD) developed by Datago Technology Limited and the investor relations activity database of the China Stock Market and Accounting Research (CSMAR).
Our results show that the tone of visiting media is more optimistic, especially when companies release bad news. In addition, the visiting media only increase the information content of their news reports when companies release good news. There is no significant difference in information content between the visiting and nonvisiting media in the case of bad news. These results indicate that the way media journalists interpret information after communicating with management varies with the nature of the information obtained. Our analyses show that the involvement of analysts, institutional investors, or peer journalists and a richer information environment can effectively restrain the optimism bias of visiting media. Company visits are an important channel through which the media are more likely to establish or maintain business relationships. Our conclusions are still valid after using a treatment effect model to address self-selection bias, in addition to a series of other robustness tests.
Our study supplements the relevant literature on the factors reshaping the role of media in society. Studies mostly discuss the factors affecting the quality of media reports from the perspectives of journalists, readers, advertisers, and governments, but few studies explore the process and channels through which media obtain information. Corporate site visits are one of the most important ways to obtain information. However, this process and its economic consequences remain locked in a “black box”. Our study empirically assesses the effectiveness of journalists' communications to obtain information from firm managers. The results show that in terms of the nature of news about site visits, the reactions of visiting journalists after communicating with firm managers are asymmetrical and their optimism bias emerges only when firms release bad news.
Our study also enriches the literature on communication between capital market participants and firm managers. Market participants can obtain valuable information from corporate site visits and make better decisions. To the best of our knowledge, few studies illuminate the benefits or costs for visiting journalists. Our results show that when firms release bad news, the quality of visiting journalists' news reporting is impaired. Today, we find that the standards for reporting quality and the responsibilities of journalists during investor relations activities are not clear or specific. The conclusions of our study should attract the attention of regulators and investors.