Research on economic growth since China's reform and opening-up generally focuses on two aspects: market-oriented reform, which has greatly improved the efficiency of resource allocation; and competition between local governments, which strongly promotes resource aggregation and local economic growth. However, over the last two decades, China's economic growth has developed new features: GDP growth has continued to slow, total factor productivity (TFP) growth has shown a downward trend, the output efficiency of investment has decreased significantly, net exports as a share of GDP have fallen rapidly since peaking in 2007, and the proportion of the private sector has begun to stabilize after continuous improvement. This paper argues that the above problems are closely related to changes in China's growth model and that land finance has been underestimated before.
We develop a dynamic overlapping generations (OLG) model in which land finance and market-oriented reform play key roles to explain China's economic growth over the last two decades. Land finance links economic sectors as follows: households incorporate land value into their utility function; the local government obtains funds through land finance and mainly supports state-owned enterprises to carry out infrastructure construction; state-owned enterprises and private enterprises, which carry out heterogeneous production and operating activities, provide final products and distribute income to households; households deposit money in the bank and obtain down payments for housing through bank loans; and banks provide loans to enterprises to support their production and operations. Subsequently, we extend the two-period model to a multi-period OLG model and perform parameter calibration and model solution. We use MATLAB to simulate China's economic growth in an iterative way.
Our results show that land finance works as a pivot in the model, allowing the local government to collect capital from the household sector and invest in the infrastructure sector mostly owned by the state. This progress has accelerated along with urbanization in China, interacting with the development of private companies and forming China's unique growth pattern. Our model explains the features of China's economic growth over the last two decades well, including the slowdown of TFP growth, the growth of the private sector, and improved investment efficiency. The multi-period model is consistent with the trend of China's economic structural changes from 1998 to 2017, as well as macro indicators such as savings rate, investment rate, foreign investment and reserves.
The emergence of land finance and market-oriented reform to jointly drive economic growth has a certain historical inevitability as a result of the processes of urbanization and economic transition. Although land finance provides a large amount of funds and a powerful driving force for China's rapid economic growth, it also hinders improving the efficiency of resource allocation. With the further weakening of the role of land finance, continuously promoting technological progress, deepening the reform of state-owned enterprises, and deepening financial reform, among others, are key measures for China's long-term sustainable economic growth.
The marginal contribution of this paper is as follows. Following Song et al. (2011), the paper embeds the land finance mechanism in the process of economic growth, which explains the mechanism through which the proportions of the state-owned sector and the private sector tend to balance each other, thus establishing a new model of China's economic growth over the past two decades and providing a new perspective for the study of economic growth.

Despite the essential role of shadow insurance in financial stability, it has received much less attention than shadow banking. Shadow insurance is the transfer of insurance by insurers to unregulated or less-regulated affiliated insurers via reinsurance, effectively increasing leverage in the insurance sector and the fragility of the whole financial system. As the 2008 global financial crisis showed, excessive risk-taking by insurers can have destabilizing effects. However, due to the opacity of shadow insurance and the lack of appropriate natural experiments, the literature only presents some simple stylized facts or structural estimates based on limited data, while few studies seek to causally identify shadow insurance activities and their underlying risk-taking mechanisms.
China's strengthening of the regulation surrounding the disclosure of affiliated reinsurance by Chinese insurers (treatment group) constitutes an ideal natural experiment to address this open question, given that the regulation policy changes mainly apply to Chinese insurers. Foreign insurers in China are the natural control group. The paper uses the micro-data of insurance companies from 2010 to 2019 and a difference-in-differences (DID) methodology to identify shadow insurance activities in China, providing more convincing empirical evidence for the risk-taking behavior and operational stability of insurance companies. The results show that the regulation reduces the shadow insurance activities of Chinese insurers by reducing reinsurance. Chinese insurers' leverage and return on equity decrease significantly by 0.035 and 0.319 respectively, and their operational stability improves significantly. The parallel trend test ensures the validity of our DID identification strategy, and the placebo test with counterfactual analysis corroborates the results.
The paper further identifies how shadow insurance activities affect insurance companies' risk-taking behavior. First, due to the stark differences between the liability structures of life insurers and property insurers, life insurers carry out more shadow insurance activities motivated by capital management than property insurers. Therefore, strengthening the capital supervision of affiliated reinsurance has a significant impact on Chinese life insurers but not on Chinese property insurers. Second, shadow insurance increases life insurers' risk-taking behavior not only on the liability side by relaxing capital requirements but also on the asset side, amplifying the overall risk mismatch of the balance sheets. Strengthening the regulation of affiliated reinsurance can undermine this mechanism, improving the operational stability of the insurance industry and reducing the likelihood of systemic risk. Third, the heterogeneity analysis shows that the effects are greater for group insurers, meaning that strengthening the regulation of affiliated reinsurance has a greater impact on group insurers. The leverage of group insurers decreases and their operational stability improves more than those of non-group insurers, reducing the overall systemic risk of the financial market.
This paper has important policy implications. First, the results of the paper shed light on the insurance sector's systemic importance in the financial system. To reduce the likelihood of contagious systemic risk, regulators need to pay more attention to the increasingly systemically important insurance sector, promote its high-quality development, and reduce its operational risks. By deepening the reform of the financial system, China can effectively prevent the build-up of systemic financial risks. Second, the paper shows that financial innovation (including innovation in insurance) is a double-edged sword and must be balanced against prudential regulations. Therefore, financial regulators can pay attention to the extent and scope of financial innovation. Third, because financial institutions spread systemic financial risks through balance sheet expansion, the paper's findings and methodology can shed light on the identification and regulation of shadow financial activities by financial institutions through (less-regulated) subsidiaries, especially systemically important financial institutions and holding companies. Shadow financial activities have already blurred the boundaries of financial institutions through various financial innovations, and a macro-prudential regulatory framework for financial activities will be more efficient. The paper also provides a solid academic foundation for designing a more holistic macro-prudential regulatory system.

China has established a three-pillar pension system to support retirees' living standard,including public basic pension insurance, occupational annuities, and commercial pension insurance. Basic pension insurance is the dominant component in terms of the number of participants and the amount of pension funds; however, it faces increasing challenges due to rapid population aging. Thus, it is urgent to develop the other two pillars of the pension system, especially enterprise annuities.
Enterprise annuities are an effective strategy to combat the issue of population aging in OECD countries.In 2018, only 87,400 chinese firms offered their employees enterprise annuities, and the 23.88 million enrolled workers accounted for 5.7% of all enrollees in the basic pension program for urban workers (2018 Bulletin on Human Resources and Social Security). Extensive discussions among policy makers and scholars extrapolate factors that affect firms' incentive to provide annuities, but no consensus has been reached. Despite much discussion, few studies empirically examine whether and to what extent the basic pension program affects firms' decisions about establishing enterprise annuities. This study aims to find the answers to these questions.
In theory, the basic pension for urban workers can have a positive or negative effect on enterprise annuity provision. On the one hand, the higher labor cost involved in providing enterprise annuities may have a negative effect on firm profitability, cash flow, and innovation, lowering firms' incentive to provide annuities. On the other hand, the labor costs resulting from the high contribution rates of the basic pension program may motivate firms to increase their productivity. Therefore, firms may provide annuities to attract highly productive workers. In summary, the theoretical prediction of the relationship between the basic pension program and enterprise annuity provision is ambiguous. The goal of this study is to examine whether the high basic pension program contribution rates are the cause of the low offering of enterprise annuities.
This paper uses geographic and time variations in employers' contributions to basic pension insurance to identify the impact of the enterprises' basic pension insurance contribution burden on the development of enterprise annuities. The basic pension program is administrated at the local level and its contribution rates vary substantially across regions and over time. We manually collect the policy contribution rates of the basic pension program for urban workers, which are exogenous and thus not subject to endogeneity issues. We use administrative firm tax return data for our empirical analysis. The data cover firms of various sizes and in different industries, rendering the sample more representative than other firm-level datasets.
This study finds that basic pension insurance has a negative effect on the development of enterprise annuities. If the basic pension insurance contribution rate increases by 1 percentage point, the probability of an enterprise establishing an annuity decreases by 0.29 percentage points and the annuity payment rate decreases by 0.006 percentage points. The mechanism analysis shows that the high contribution rates for basic pension insurance reduce the likelihood of enterprises establishing enterprise annuities to attract and retain excellent employees. Profit and cash flow reductions are also important mechanisms.
To the best of our knowledge, this study is the first to formally assess the effect of basic pension insurance contribution rates on firms' likelihood to offer annuities using a large sample. The study explains the possible underlying reasons for the underdevelopment of enterprise annuities. The results provide empirical evidence for the debate on the role of the basic pension contribution rates in firms' provision of annuities and support the argument that the basic pension hampers the development of enterprise annuities. The results imply that lowering employers' basic pension insurance contribution rates will promote the establishment of enterprise annuities.

In August 2021, the 10th meeting of the Central Financial and Economic Commission of the CPC Central Committee was held. The meeting focused on the promotion of common prosperity and stressed that the size of the middle-income group should be expanded and common prosperity should be promoted through high-quality development. The primary distribution plays a dominant role in determining personal income and the basic pattern of the social distribution of final income. Labor reward is the major source of individual income resulting from the primary distribution, as distribution according to work is a mainstay in China. Therefore, increasing the labor income share is a key mechanism to ensure that all people share the fruits of economic development, expand the size of the middle-income group, and realize common prosperity. In this context, exploring the determinants of the labor income share provides important theoretical contributions and has practical implications.
The literature points out that the efficiency of resource allocation in capital markets has an important effect on the labor income share. As an international business language, accounting information plays an important role in alleviating information asymmetry. The quality of accounting information directly determines the efficiency of resource allocation in capital markets. Comparability, which enables users to identify similarities and differences between two sets of economic phenomena, is recognized as the primary quality characteristic that enhances the usefulness of accounting information. Thus, our question is whether accounting comparability can affect firms' labor income share.
Using all Chinese firms listed on the Shanghai or Shenzhen stock exchanges from 2006 to 2019, this paper investigates the impact of accounting comparability on the labor income share. We find that greater accounting comparability leads to a higher labor income share in listed firms, which indicates that improving the quality of accounting information can help employees to share their enterprise's achievement. We provide evidence that reducing the cost of capital and improving research and development (R&D) intensity are two important channels through which accounting comparability increases the labor income share; accounting comparability only has a significant positive effect on non-managers' labor income share and does not affect managers' labor income share; the positive relation between accounting comparability and the labor income share is stronger for firms with greater financing constraints or lower information transparency, and for firms whose peer firms have better accounting earnings quality; and accounting comparability can improve firms' ability to create value by increasing their labor income share.
This paper contributes to the literature in the following ways. First, this study extends the literature on the determinants of the labor income share. The literature shows that biased technical change, industrial restructuring, industrial upgrading, labor bargaining power, foreign direct investment, financing constraints, firm size polarization, and corporate bond financing can significantly influence the labor income share, but ignores the impact of the capital market on the labor income share. Considering that accounting information quality is one of the key determinants of market efficiency, this paper investigates the relation between accounting comparability and firms' labor income share. It has important implications for understanding how the capital market affects firms' labor income share.
Second, we provide new evidence of the economic consequences of accounting comparability. Focusing on financing costs, corporate innovation, the efficiency of acquisition decisions, earnings management, stock price crash risk, tax avoidance, and executive incentive, the literature explores the impact of accounting comparability on corporate decisions. However, it ignores the potential role of accounting comparability in firms' resource allocation decisions. Therefore, from the perspective of the labor income share, this paper enriches the literature on the economic consequences of accounting comparability.
Finally, our study reveals two mechanisms through which accounting comparability enhances firms' labor income share. That is, accounting comparability can not only reduce the cost of equity and debt to mitigate firms' tendency to substitute capital for labor under financing constraints but also enhance firms' R&D investment intensity to increase their reliance on more skilled human capital, thus promoting their labor income share. It is useful to understand these mechanisms more comprehensively.

The rate of defaults in China's bond market has rapidly increased. However, the ratings allocated to bonds by credit rating agencies (CRAs) have not keep pace with this increase and have thus failed to efficiently reflect changes in corporate default risk. Some CRAs have even awarded overly high ratings to deliberately mislead investors, which has intensified doubts about these CRAs' independence. Improving the independence, authenticity and international recognition of China's domestic CRAs has thus become an urgent problem for the country's bond market.
As of July 2021, 14 CRAs in China's bond market have obtained regulatory rating certification: four investor-paid CRAs and 10 issuer-paid CRAs. These CRAs are locked in fierce competition for ratings business. Since 2017, the People's Bank of China and the China Securities Regulatory Commission have promoted the gradual opening-up of the credit rating industry, allowing overseas CRAs to apply for domestic rating business. As this will further intensify competition in the domestic rating industry in the future, this is an important area of study.
In theory, the intensification of competition between financial intermediaries should improve their internal management efficiency and reputation, thus reducing moral hazard. This is supported by empirical studies on the banking industry that show competition reduces moral hazard and risk-taking behavior, and thus improves credit quality and efficiency. As CRAs are the most important intermediary in the bond market, it is worth exploring whether the intensification of competition between them will also have a positive impact on the reliability of the credit ratings they issue. On the one hand, from a reputational perspective, the intensification of competition between CRAs could increase their level of attention to their reputations and thus increase the quality of their internal control, thereby reducing the level of moral hazard behavior and in turn improving the quality of the ratings they issue. On the other hand, unlike in the banking industry, CRAs mainly accrue income from bond issuers under an “issuer pays” business model. Thus, CRAs are incentivized to cater to bond issuers and may therefore do so by upwardly adjusting their ratings of the issuers' bonds. Consequently, when competition between CRAs intensifies, ratings will increase, thereby reducing the quality of ratings and increasing the implied risk of the bond market.
To study the impact of inter-CRA competition on rating scores, we use corporate bond issuance data from the exchange bond market from 2012 to 2017, combined with an exogenous event: the intensification of CRA competition brought about by the establishment of a new CRA, Oriental Jincheng International Credit Assessment. Our empirical results lead to several conclusions. First, in a rating market dominated by the issuer-pays business model, increased competition leads to higher credit rating scores, and thus a declining impact of credit ratings on credit spreads and on the predictability of future enterprise defaults. This suggests that increased competition between CRAs leads to higher rating scores and lowers the quality of credit ratings. Second, the above-mentioned impact is greater on issuers that have a greater conflict of interest with CRAs than a lesser conflict of interest with CRAs. This shows that in a market where the reputational mechanism of CRAs is weak, CRAs operating under the issuer-pays model will relax their rating standards for issuers with whom they do more business, and thus give these enterprises higher rating scores than those with whom they do less business. Third, heterogeneity analysis shows that CRA competition does not lead to higher rating scores being issued by domestic CRAs who have foreign shareholders, highly reputable underwriters and more media attention; thus, these characteristics effectively reduce the negative impact of competition in the rating industry. Fourth, our results show that rating competition leads to a decline in stock market information efficiency, which is manifested as increases in stock mispricing, stock price synchronization and analyst forecast bias.
This study makes three contributions to the field. First, we use bond market data to study the consequences of CRA competition, which reveals that the intensification of competition between CRAs under the issuer-pays model leads to higher rating scores and a decline in rating quality. This finding—that competition between financial intermediaries can have a negative impact on their performance—enriches the literature on competition between financial intermediaries. Second, this study obtains solid evidence on the consequences of CRA competition, with this evidence being robust to endogeneity problems. Moreover, we discuss how to mitigate the negative impact of this competition. Third, we study the economic consequences of competition between CRAs on the stock market, and furnish evidence on the spillover effect of CRA competition on the financial market.

With the transformation of China's economy from high-speed development to high-quality development, China's insurance industry has gradually stepped into the stage of high-quality development. In the long-term development of China's insurance industry, problems such as information asymmetry, moral hazard, and adverse selection always exist in the insurance market, and insurance disputes frequently occur due to the inconsistency between the maximum utility goal of consumers and the maximum benefit goal of companies. The objective existence of insurance consumers' rights and interests infringement has hindered the high-quality development of the insurance industry. Insurance consumer protection is one of the goals of insurance regulation and also a symbol of healthy development.
In the past, research on consumer rights was mainly studied in insurance consumer rights system and legal system, while lacking empirical research. This paper studies the effect of the insurance consumer complaint hotline on insurance Company performance. This study complements the literature on consumer protection and corporate finance in the field of insurance. Based on the panel data of 163 Insurance companies in China from 2009 to 2018, a quasi-natural experiment was designed using the insurance consumer complaint hotline as an exogenous policy variable. Specifically, we establish a difference-in-differences (DID) model to investigate the impact of the insurance consumer complaint hotline on insurance company performance and its influence mechanism. The individual grouping variable of this paper is divided based on the data of insurance letters and visits in 2011, in which the insurance companies with a larger number of letters and visits in 2011 are regarded as those with poorer protection of consumer rights and interests. The time grouping variable in this paper is divided based on the year 2012. The time grouping variable multiplied by the individual grouping variable is the DID variable, which is also the key independent variable. The main dependent variables in this paper are proxies of company performance, including sales, market share, and ROA.
The results show that the opening of the insurance consumer complaint hotline significantly reduces the performance of insurance companies with poor consumer rights and interests protection. Further, this study finds that the higher the commission incentive level, the more significant the negative impact of insurance consumer complaints on company performance. Unsuitable high commission system is easy to make insurance sales staff ignore consumer rights and interests, making it difficult to eliminate the sales misleading phenomenon. The high commission is the promotion factor of insurance consumer's rights infringement and increases the difficulty of insurance consumer's rights protection. Through heterogeneity analysis, this paper finds that the results between life insurance companies and property insurance companies are different. Although life insurance companies are also affected by consumer complaints, the consumer complaint hotline has a more significant negative impact on property insurance companies which with poor consumer rights and interests protection.
The results enrich the theory of consumer rights and insurance company governance and have important guiding significance for the practice of insurance consumer protection and the high-quality development of the insurance market.

Since the reform and opening-up policy, China's economy has made remarkable achievements with innovation playing an important role. As China enters a phase of high-quality development, innovation is becoming increasingly important. However, innovation is characterized by a high failure rate and high risk, causing enterprise decision makers' risk tolerance to be the basic determinant of corporate innovation. The ownership structure of listed companies in China is highly concentrated, and the ultimate controller determines the company's major decisions. Although ultimate controllers' wealth concentration has an impact on enterprise innovation through risk tolerance, few studies focus on this issue. Taking Chinese private listed companies as an example, this paper examines whether ultimate controllers' wealth concentration affects corporate innovation.
In theory, high wealth concentration of ultimate controllers may have both positive and negative effects. The risk diversification hypothesis suggests that higher wealth concentration will increase the actual controllers' risk exposure level, reduce their risk preference, and lead to a lower tolerance for innovation failure, thus inhibiting corporate innovation. However, the information hypothesis suggests that higher wealth concentration makes the actual controller more capable and energetic to obtain and analyze the enterprise's internal and external information, to make better innovation decisions and activities, and to ultimately contribute to corporate innovation.
Based on manually collected data on actual controllers' wealth concentration, this paper empirically studies the influence of the wealth concentration of actual controllers in private listed companies on corporate innovation. The results show that the higher the ultimate controllers' wealth concentration, the lower the level of innovation. The mechanism test shows that ultimate controllers' wealth concentration reduces enterprises' risk-taking. These results support the risk diversification hypothesis, which states that the higher the ultimate controllers' wealth concentration, the lower their tolerance for innovation failure will be, hindering corporate innovation. Further research shows that government subsidies can act as a risk buffer and reduce the negative effect of ultimate controllers' wealth concentration on innovation by dispersing innovation risks. Institutional investors can play a monitoring and balancing role to reduce the negative impact of ultimate controllers' wealth concentration on innovation by restraining risk aversion. Finally, when ultimate controllers' wealth concentration is higher, the controllers are more likely to engage in technology takeovers to compensate for insufficient independent innovation.
Our paper makes several contributions to the literature. First, taking Chinese private listed companies with highly concentrated equity as an example, this paper studies the influence of actual controllers' wealth concentration on innovation and thus contributes to the literature on corporate innovation. Second, this paper supplements studies on the relationship between government subsidies and corporate innovation from the perspective of government subsidies acting as a risk buffer. Third, from the perspective of limiting ultimate controllers' risk aversion, this paper expands the literature on institutional investors' governance role. Fourth, from the substitution effect of technology mergers and acquisitions (M&A) on independent innovation, this paper expands research on technology M&A.
To stimulate private enterprises' innovation, this paper has the following policy implications. First, the individual income tax rate for the restricted transfer of shares in listed companies should be lowered to reduce the cost of actual controllers' wealth dispersion, encourage wealth dispersion, and thus stimulate the innovation of private enterprises. Second, the differentiated arrangement of voting rights should be expanded and strengthened to reduce the risk of loss of control rights caused by diversifying actual controllers' ownership rights, encourage actual controllers to diversify their wealth investment, and stimulate private enterprises' innovation. Third, the government should play a risk-sharing role in corporate innovation to improve ultimate controllers' innovation failure tolerance and stimulate private enterprises' innovation. Finally, we should develop institutional investors and increase their voting power surrounding corporate innovation so that they can better play a monitoring and balancing role against the self-interest of actual controllers with concentrated wealth, which will further stimulate private enterprises' innovation.

External guarantees are widespread in the Chinese capital market. At the end of 2019, the external guarantees of all A-share listed companies were worth RMB446.8 billion. The 683 companies with external guarantees make up nearly 20% of all Chinese listed companies, and approximately half of these companies (338) have external guarantees that exceed 50% of their net assets. Through risk contagion, the continually increasing size of external guarantees has added to the risk level in the market. Some enterprises have already experienced severe problems due to excessive external guarantees. For example, Shengyun Environmental Protection Group was ultimately delisted and went bankrupt due to significant unpaid guarantee debts. External guarantees can also lead to “thunderclap” events in which one company after the other gets into difficulty, and this has attracted the attention of regulators and investors.
Innovation is the primary driving force for the high-quality development of the Chinese economy. Innovation is also important for individual enterprises, as it helps them break through the bottleneck of development and enhance their core competitiveness. However, innovation requires long-term and continual investment, which in turn requires an enterprise to have a healthy financing ability and an active willingness to innovate. External guarantees not only increase the financing constraints on enterprises but also intensify agency conflicts, which may affect enterprises' willingness to invest and their level of investment in R&D. However, few studies have explored the impact of external guarantees on enterprises' R&D investment.
Using a sample of Chinese A-share listed companies from 2008 to 2019, this study examines the impact of external guarantees on enterprise innovation investment, and the underlying mechanism of this impact, from the perspectives of innovation resources and innovation willingness. The results show that external guarantees significantly reduce innovation investment by enterprises, and the impact is more significant in non-state-owned enterprises and technology-intensive industries than in state-owned enterprises and non-technology-intensive industries. The empirical conclusions remain robust to the Heckman two-stage test, propensity score matching, alternative selection of instrumental variables and differences-in-differences analysis to control for endogeneity problems. Further analysis shows that external guarantees force enterprises to reduce innovation investment due to increased debt-financing costs and tighter financing constraints. External guarantees also weaken the willingness of major shareholders and executives to invest in innovation, which ultimately reduces enterprise innovation investment by increasing the agency cost of major shareholders and reducing equity incentives.
This study makes the following contributions to the literature. First, it expands the literature on the economic consequences of external guarantees. The few studies on the impact of external guarantees focus largely on corporate risk, debt financing costs, audit fees and stock price crash risk. In contrast, we examine the impact of external guarantees from the novel perspective of innovation investment.
Second, this study enriches the theoretical understanding of external guarantees. Unlike previous research, we discuss the impact of external guarantees on innovation investment within the framework of risk transfer theory and agency theory. Based on the risk-shifting hypothesis, we investigate how external guarantees weaken the ability of enterprises to obtain innovation resources. Additionally, we explore how external guarantees reduce the innovation willingness of major shareholders and executives, in keeping with agency theory. This provides a more comprehensive and in-depth understanding than previous studies of how external guarantees affect R&D investment.
Third, this study enriches research on the factors influencing innovation investment, as we are among the first to examine the impact of external guarantees on enterprise innovation. This complements previous research on how factors such as financial market development, legal protection, corporate governance, executive characteristics and executive incentives influence innovation investment.

In recent years, Chinese households' limited participation in the stock market has become noticeable. However, the proportion of housing assets in the asset allocation of households is very high. Within the general adherence to the position of “houses are for living in and not for speculative investment,” it is of great theoretical and practical significance to discuss Chinese households' limited participation in the stock market from the perspective of house price expectations.
Based on data from the China Household Finance Survey (CHFS), this paper analyzes the relationship between house price expectations and household stock market participation by constructing a theoretical model and conducting empirical tests. In terms of the theoretical model, this paper constructs a two-phase model and finds that house price expectations affect stock investment by changing stock return expectations and adjusting investment in housing assets. In terms of empirical analysis, this paper uses a probit and tobit model to analyze the impact of rising house price expectations on stock market participation and share and uses both direct and indirect methods to empirically test the existence of the two mechanisms. In the direct method, by constructing proxy variables for stock return expectations and housing asset investment, this paper expounds whether households' expectations of house price increases affect these variables. In the indirect method, the paper introduces the exogenous impact of the housing purchase restriction policy, which hinders the adjustment mechanism of housing asset investment, to indirectly identify the impact mechanism. The empirical results further verify that the expectation of higher house prices reduces the probability and degree of households' participation in the stock market through the mechanisms of changes in expected stock returns and adjustments in housing assets. At the same time, this paper empirically analyzes the impact of deviation in household behavior on the relationship between house price expectations and stock market participation. The results show that behavioral deviations such as mental accounts and limited attention hinder the adjustment of household portfolios and weaken the inhibitory effect of house price expectations on household stock investment. This paper further analyzes the heterogeneity of households according to their background risk, social network, and the head of household's education level. The results show that the expectation of higher house prices has a greater inhibitory effect on stock investment by households with higher levels of background risk, lower levels of social network, and lower levels of education.
Compared with previous studies, the innovation of this paper is mainly reflected in the following aspects. First, through the theoretical model and empirical tests, this paper comprehensively analyzes the effect and underlying mechanism of house price expectations on stock investment, providing a new explanation for the mystery of households' limited stock market participation. Second, the paper uses behavioral finance theory, taking mental accounts and limited attention as the starting point, to study the impact of irrational behavioral deviation on the relationship between house price expectations and stock investment, and expands the research perspective in the field of household asset allocation. Third, this paper chooses “whether the city publishes real estate policy regulation documents” as the instrumental variable for house price expectations, which better overcomes the possible endogeneity problem.
It is expected that rising house prices will reduce households' stock investment through the mechanisms of changes in expected stock returns and adjustments in housing assets. Therefore, considering the position that houses are for living in, not for speculative investment, it is necessary to not only stabilize land and house prices but also pay attention to guiding and stabilizing house price expectations to promote the steady and healthy development of the real estate market. In addition, it is necessary to promote households' demand for stocks and provide impetus for the healthy development of the housing market and capital market from the perspective of demand. Moreover, the existence of behavioral financial deviations such as mental accounts and limited attention will prevent households from adjusting their portfolios according to the expected changes in prices. When macroeconomic management and financial supervision departments design policies and when financial institutions design financial products and wealth management services, they need to consider households' behavioral deviations.

This study explores the role of stock exchange comment letters, as a preventive regulatory mechanism, in promoting the capacity utilization rate of Chinese listed firms, and its potential channel and economic consequences. The formation of corporate overcapacity in China is a complex process. It's difficult to completely rely on the market mechanism.Therefore,exploring a synergistic mechanism by which the government and the market could reduce capacity overhang is very important. However, the literature does not provide a unified framework for coordinating market and government actions to promote firms' reduction of capacity overhang. This study combines the specific background of China's overcapacity with an investigation of the preventive regulatory mechanism of stock exchange comment letters, and explores the synergy between the market and the government in reducing capacity overhang.
We analyze overcapacity-related annual report comment letters from 2014 to 2017. We find that firms are more likely to reduce capacity overhang after they receive an exchange comment letter related to overcapacity issues than when they do not receive such a letter. Moreover, we find that this effect is stronger in firms with more negative media coverage or with good governance. These results are consistent with the theoretical prediction that stock exchange comment letters play an important role in alleviating information asymmetry between the capital market (administrative agencies) and commented firms, therefore forcing firms to reduce capacity overhang. Furthermore, we find that overcapacity-related comment letters improve resource allocation and decrease the agency issues of commented firms, which is a potential channel by which comment letters reduce capacity overhang. As a result, commented firms are likely to exhibit higher operating efficiency and performance than uncommented firms.
The contributions of this study are as follows. First, this study innovatively explores an effective way to reduce corporate capacity overhang from the perspective of stock exchange comment letters. Although there is extensive and in-depth research in previous studies on the causes and economic consequences of capacity overhang, there is relatively little research on how to prevent capacity overhang. Thus, this study's exploration of market-government synergy in capacity overhang reduction provides important academic evidence.
Second, this study enriches the literature on preventive regulations in the Chinese capital market from the perspective of the observed effects of annual report comment letters. Although the preventive regulatory role of comment letters is increasingly the main mechanism of stock exchange regulation, few studies focus on these letters' effects, such as how annual report comment letters improve information disclosure, internal control quality, and capital market pricing efficiency. Unlike previous research, this study empirically examines the preventive regulatory effect of annual report comment letters from the perspective of de-capacity, and provides unique evidence on the Chinese capital market to supplement the international academic literature on regulatory comment letters.
This study has several policy implications. It provides a timely response to China's current de-capacity policies and the carbon peak plan.China's socialist market economic system has the potential to become an asset in international economic cooperation and competition, and this important issue requires further research.
Overall, this study explores a sustainable mechanism of overcapacity reduction that is based on collaborative governance involving the market and government. This exploration is performed from the perspective of the annual report comment letters, and thereby provides new understanding on the government-market relationship in a socialist market economy.

The theoretical literature on financial economics usually assumes that rational investors follow the Bayesian learning method—that is, if an investor's personal experience cannot contain new information, it cannot affect the investor's belief-updating process. Professional institutional investors have inherent advantages over individual investors in terms of information acquisition and processing, investment decision-making mechanisms, and internal governance methods, and are therefore considered rational investors. However, a key question remains: do professional institutions follow rational Bayesian learning or reinforcement learning in their decision-making on investments？
Given the random allocation of investors' profit and loss generated by the lottery system used to issue initial public offering (IPO) investments in China, this paper uses IPO lottery allocation data provided by the Shenzhen Stock Exchange to empirically test the effect of experience on the decision-making behavior of institutional investors. First, it tests whether institutional investors' previous earnings experience affects their tendency to participate in subsequent IPOs. Then, it tests whether the previous loss experience of institutional investors affects their quotations for subsequent IPOs. Finally, it examines whether the personal characteristics of fund managers can influence the effect of previous loss experience on institutional behavior.
The main conclusions of this research are as follows. (1) Institutional investors do not completely follow a rational Bayesian learning method but do follow a naïve reinforcement-learning method. Specifically, institutions that are allocated the winning bid at an early stage are significantly more likely to participate in subsequent IPO subscriptions than institutions that are not. In addition, the higher the rate of return of new shares issued in the previous period, the stronger the positive relationship between the allocation experience and subsequent participation in IPO subscriptions. (2) The income experience of institutional investors promotes the renewal of their beliefs and produces more optimistic valuation beliefs than pessimistic valuation beliefs. Specifically, the higher the return on new stocks in the previous period, the higher are the price increases given by the institutions that receive stock allocations through lotteries when they participate in the valuation of subsequent new shares, and these price increases are significantly higher than those given by the unsuccessful control group. (3) Experience may influence institutional behavior via the intensive learning process of institutional investment managers. Regarding the personal characteristics of fund managers, research on the mechanisms of adjustment of institutional behavior shows that rich long-term experience, high education level, and competition between multiple fund managers moderate the effect of profit and loss experience on institutional behavior.
The main contributions of this research are as follows. (1) This research focuses on the experience of professional institutional investors, who are typically regarded as rational investors, and finds that the behavior of institutions is significantly affected by a naïve reinforcement-learning process. Thus, a good result reinforces the behavior that an organization takes to achieve the result and may cause its valuation beliefs to become relatively more optimistic. (2) Empirical research on experience and behavior usually faces the endogenous problem of investor experience (Choi et al., 2009; Chiang et al., 2011). This article instead draws on the random test opportunities provided by the lottery system in China's IPO distribution (as these better alleviate the endogenous problems of experience) and obtains more credible inferences about causality than other studies. (3) Mainstream studies in the field of IPOs usually focus on the issue and pricing efficiency of the inquiry system and auction system, and theoretical and empirical studies usually ignore the effect of institutional investors' learning mechanisms on pricing efficiency. In contrast, based on research on the background of China's IPO auction system, this paper finds that an institution's experience has a significant effect on its future IPO purchasing tendency and price level. This provides a new perspective for re-examining over-quoting and the “uncertainty of investor participation in the IPO auction system,” which is a concern noted in the theoretical literature (Sherman, 2005; Jagannathan et al., 2015).