The literature mainly explores the independent effects of corporate leverage change on fixed asset investment and R&D investment. In reality, a firm will take an integrated perspective when allocating its limited resources to either of these investment types, as their risks and returns differ. Fixed asset investments generally indicate low risk and relatively certain returns, but the firm's level of technology will not increase. Conversely, the final outcomes of R&D activities are uncertain, which increases volatility in terms of market profitability and raises financing costs. Successful R&D investment leads to an increase in total factor productivity (TFP), and the firm can earn profit more efficiently. The core research questions raised in this study are: how does a firm's change in leverage affect its decision regarding allocating resources to these two types of investment? What characteristics lead firms to invest more in R&D activities?
We aim to address these questions through a unified framework, so we first construct a three-period corporate investment model to identify the nonlinear relationship between changes in corporate leverage and investment behavior. At the beginning of the first period, a firm's original fixed asset investment consists of internal and external capital. It also holds cash and cash equivalent in hand to deal with potential adverse shocks in the future. In the intermediate period, the firm may remain in two possible states. If the probability is that a bad state will occur, the firm experiences a liquidity shock. It must then resort to its cash reserve to ensure liquidity; otherwise, the firm is forced into bankruptcy and liquidation. If a good state occurs, the firm does not encounter a liquidity shock and therefore invests its cash reserve to increase its fixed asset level or to conduct R&D. The optimal investment can then be determined. When the leverage is low along with the original fixed investment level, the firm uses up all of its cash reserve to increase its fixed investment and does not invest in R&D. As the leverage increases, the firm will make the two types of investment simultaneously so that the expected marginal benefits are the same. When the leverage increases beyond a cutoff point, the benefit of innovating exceeds the benefit of increasing the fixed assets, so the firm invests all of its cash reserve in innovation.
Our model offers three main implications that can be empirically tested. First, the level of leverage can determine the investment behavior of the firm. An increase in leverage from a low level leads to an increase in a firm's fixed asset investment or R&D activities. However, with an increase in leverage from a high level, a firm will not increase its investment because the negative effect of leverage on firm value is dominant. Second, a firm's financial flexibility may affect its investment behavior. Such flexibility is captured in the model by a firm's cash reserve in the first period. Holding more cash in hand in advance offers two advantages. If the firm suffers from a liquidity shock, more cash enables it to hedge against the adverse effect over a wider range. When the firm is free of such a shock, more cash can be input to increase its fixed asset investment or engage in more innovation, both of which increase firm value. Our model shows that when a firm is more financially flexible, it allocates more cash to R&D. Third, a firm with better future prospects is likely to more intensively engage in innovation.
We obtain annual data from the financial reports of Chinese listed companies on the Shanghai and Shenzhen stock exchanges from 2007 to 2017. We first find that an increase in leverage from a low level can increase a firm's investment. As the leverage increases, this effect diminishes and eventually vanishes. This finding is consistent with our first hypothesis. Second, an increase in short-term leverage is likely to lead to more R&D investment, while an increase in long-term leverage is mainly transformed into more fixed asset investment. Third, the empirical evidence concerning corporate financial flexibility and prospects confirms our model predictions.
This study has important policy implications. A structural view of corporate leverage change can inform the debate. Commercial credit can lead to a leverage increase, which improves business activities because more external funds are available. This can be referred to as “good leverage.” In contrast, increases in long-term leverage and bank leverage lead to an increase in the fixed assets of investment firms with overly high leverage and poor prospects, and particularly for “zombie” firms, which exacerbates the overcapacity problem. We provide clear policy recommendations on how to enable finance to better serve the real economy and promote high-quality development. Measures should be taken to allocate more financial resources to innovative firms and grant high-quality and promising firms more room and freedom to adjust their leverage ratios.

Given the uncertain international situation, China should take full advantage of the strength of its domestic market by tapping the potential of domestic demand to establish a new development paradigm with domestic circulation as its mainstay, thereby resolving the impact of external shocks and demand contraction.Besides, China should also continue to expand its high-level opening-up to the outside world to attract more foreign investment and accelerate the implementation of major foreign-funded projects. This wouldnot only promote the country's industrial transformation and upgrading,but also enhance its status and infuence in global industrial chains, supply chains, and innovation chains. Investment from multinational enterprises is key for developing national value chains and promoting the connection between domestic and international circulation, and thus will underpin the formation of a new development pattern in which domestic and international circulations promote each other. Accordingly, this study explores the impact of foreign investment on the upgrading of China's national value chains by systematically examining an interregional input-output table of 30 provinces using exploratory spatial data analysis and spatial weight matrices.
The empirical results show that FDI has a significant promoting effect on the upgrading of China's national value chains. Regions that receive FDI not only obtain a direct technology spillover but also benefit from “involuntary” spillovers from neighboring regions. The spillover effect of FDI is strongest within the province. Compared in regions with lower levels of technology and FDI, in regions with higher levels of technology and FDI, national value chains are more strongly promoted by FDI entry. Compared with inland areas, FDI entry in coastal areas is more conducive to the upgrading of national value chains. Furthermore, the higher the degree of marketization in an area, the more that FDI entry promotes domestic value chains in the area, and the spillover is most strengthened within the area. Finally, FDI can significantly optimize local industrial structures by upgrading national value chains, and its direct upgrading effect is more significant than its indirect upgrading effect.
This study makes several contributions. First, it investigates the impact of foreign capital entry on the upgrading of China's national value chain. The findings could serve as a reference to aid the promotion of China's national value chain and the balanced and coordinated development of various regions, and could also contribute to the establishment of a new development pattern of domestic and international circulation. Second, given the strong spatial correlations among the national value chains in different regions, the spatial econometric model adopted in this study is a useful methodological tool with which to measure the spatial correlation and spillover effect of FDI into adjacent areas. This model is also less susceptible to reverse causality than other models, which enhances the credibility of our empirical results. Third, considering that national value chains play a key role in improving regional industrial structures, and that attracting foreign investment is required for developing national value chains and constructing an integrated domestic market, this study further analyzes the effect of foreign investment on the upgrading of local industrial structures through the channel of domestic value chains.

The green economy is a major avenue of current research and an important foundation for the long-term development of society, especially as the rapid development of China's economy in the past decades has caused problems such as pollution and ecological damage. Unfortunately, rapid economic development often causes deterioration of the natural environment, as such development is focused on achieving a certain quantity of economic growth without also being focused on achieving a certain quality of economic growth. Thus, the growth is unsustainable. To address this need to reconcile the goals of long-term economic growth with those of green construction, and thereby achieve the dual benefits of sustainable economic growth and environmentally aware governance, the former China Banking Regulatory Commission issued the “Green Credit Guidelines” policy (hereinafter, green credit policy) in 2012. This policy aims to use financial market resources to reduce environmental pollution caused by firms' production and operation, and to improve the system of credit resource allocation such that it favors environmentally friendly firms; thus, the policy has generated great changes throughout the financing environment. However, although exporting is an important aspect of China's economic growth, many Chinese exporters continue to face significant financing constraints, such that their export growth is limited by their ability to acquire of external credit. Chinese exporters consequently face problems in identifying new financing channels. These problems have been addressed by the implementation of the green credit policy, which has promoted the development of a green finance channel from which exporters can obtain external financing, further contributing to the growth of China's exports. The green economy concept is thus increasingly shaping the developmental direction of China's export patterns.
This study analyzes the potential effect of green finance on China's trade sector by studying the impact of green finance development on export growth, from the implementation of the “Green Credit Guidelines” policy onwards. Therefore, this study delineates a feasible path China can follow to achieve export growth while minimizing carbon emissions. This study also discusses technical solutions for global green construction, to which China could make significant contributions.
The green credit policy provides a new “signal display” mechanism for exporters to obtain financing, which eases the acquisition of external financing for vulnerable exporters in an environment featuring information friction. That is, the policy requires banks to issue green credit resources based on the direct signal of an exporter's pollution level rather than the exporter's “hard information,” thereby enabling exporters with poor hard information on their assets but relatively environmentally friendly production to obtain financing. Thus, as many SME exporters have low production scales and emit low levels of pollution, they have an obvious signaling advantage for obtaining green credit. This policy alleviates the financing constraints that SME exporters face from being unable to obtain traditional forms of credit, and may ultimately increase the scale of exports.
This study uses the difference-in-differences estimation method to analyze the role of green finance development in China's export growth and thereby identify the underlying causal relationship. It is found that the development of green finance since the implementation of the green credit policy has significantly promoted China's export expansion, increased the binary margin of exports, and optimized the volume and price structure of exports. These effects have obvious heterogeneity. The channel test shows that the alleviation of financing constraints is the core mechanism by which green finance promotes export growth. A series of robustness tests show that the export-promotion effect of green finance is robust to alternative explanations. Overall, these findings imply that green finance is an important factor that supports China's export growth and can bring generate win-win situation marrying pollution control with trade growth.

In recent year, China's foreign exchange (FX) market has undergone a change: the current account surplus has narrowed, while the volatility of capital accounts has been intensifying. One consequence of this is that FX transactions between banks and customers and between the central bank and commercial banks affect the amount of currency and base money, respectively. We observe that the channels used by the central bank to input base money have also changed: the proportion of funds outstanding for FX transactions continues to decline, while the use of monetary policy tools to input base currency continues to rise. These structural changes will have an impact on banks' balance sheets, with far-reaching implications for bank loan behavior and the macro-economy. Thus, we explore whether the changes in FX transactions are related to banks' loan behavior.
We start from the financial supply side by adopting a local equilibrium analysis framework and using a combination of theoretical and empirical analyses. We first construct a three-phase model based on bank balance sheets and introduce liquidity administration cost. The model includes two banks, one large and one small. When FX flows in, both banks obtain deposits and base money via FX transactions. The large bank is more competitive than the small bank in obtaining deposits, and thus liquidity is distributed between the two banks in an unbalanced way. In the interbank market, the two banks borrow from each other to achieve a balance sheet equilibrium. The structural distribution of deposits results in a difference in loan behaviors between the two banks. By theoretical deduction, we find that (1) the risk-taking level of banks increases with net FX inflow, and that large banks are more sensitive to FX changes than small banks; (2) the greater the uncertainty caused by liquidity shocks, the weaker the relationship between risk-taking level and FX transactions; and (3) the more unbalanced the distribution of deposits, the greater the difference in the risk-taking level between the two banks.
Based on the above theoretical analysis, we conduct empirical tests using data on FX transaction reports from SAFE and the quarterly financial data of 10 banks, and macroeconomic data from 2011 to 2018. We select the proportion of risk-weighted assets and conditional value at risk (CoVaR) as dependent variables. To alleviate the endogeneity problems of FX transactions and bank risk-taking levels, we (1) qualitatively analyze the correlations between FX loans and FX transactions, to exclude the pro-cyclical effect of bank loan behavior and FX transactions; (2) introduce liabilities to the central bank as an instrumental variable for FX transactions; and (3) use CoVaR and ΔCoVaR as dependent variables in robustness testing. The results verify our theoretical deductions and show good robustness.
We draw the following conclusions and policy suggestions. (1) There is a significant correlation between FX transactions and the risk-taking level of banks. Therefore, it is recommended that relevant departments take timely measures to hedge the FX inflow gap caused by sluggish trade and thereby prevent the pro-cyclical loan behavior of banks from causing a severe contraction of social credit and aggravating economic fluctuations. (2) The structure of the deposit market plays a key role in encouraging banks to improve their risk-taking level, and too concentrated a deposit share will hinder the optimal allocation of loan resources. To effectively incentivize large banks to provide high-quality financial services for SMEs, the concentration of deposits in the market should be somewhat limited, and more liquidity support should be given to banks that actively serve the real economy than to those that do not. (3) Liquidity expectations have a significant impact on bank loan behavior. As the world is undergoing increasing umcertainty, FX transactions fluctuate more significantly; thus, multiple policy tools must be employed to ensure that adequate levels of liquidity are maintained and that to support the management of bank liquidity expectations.
We make the following contributions. First, we incorporate international financial factors into the study of banks' loan behavior, which represents an innovation in financial intermediary theory. Second, we establish the theoretical model that examines how FX transactions affect the risk-taking level of banks through money creation at the micro-level, and further explore the mechanism by which FX affects bank credit. Third, we use the data from FX transaction reports to conduct empirical study on the relationship between FX and the risk-taking level of banks.

Improving the formation and transmission mechanism of market-oriented interest rates can increase the efficiency of the financial market and capital allocation. China has adopted a gradual reform approach for interest rate marketization. The upper and lower limits of loan interest rates have been adjusted several times, were gradually relaxed, and were finally removed in October 2004 and July 2013 by the People's Bank of China. How does interest rate marketization affect the development of the real economy? The literature focuses on the removal of the upper and lower limits of loan interest rates and examines the impact of loan interest rate marketization on capital structure and investment efficiency (Chen et al., 2019). The influences of the upper and lower limits of the loan interest rate differ for firms because of heterogeneous risks, which further affects the investment flexibility of firms and the real option value. However, this effect is rarely examined in the literature.
Unlike other studies, we examine how the removal of the upper and lower limits of loan interest rates affects access to credit resources, investment flexibility, and the value of growth options in non-state-owned firms. Theoretically, banks should set specific loan interest rates depending on the level of risk. However, with upper and lower limits, banks are unable to fully adjust their loan interest rates to the level of firm risk. The upper limit (lower limit) restricts banks from charging high interest rates (low interest rates) to high-risk (low-risk) firms. Thus, these firms may abandon credit financing or some of their investment projects because of high interest rates or a lack of funds. Firms with medium levels of risk are not affected, as their corresponding interest rates are between the upper and lower limits. After the upper limit (lower limit) is removed, banks can charge high (low) loan interest rates to high-risk (low-risk) firms, and thus, these firms can obtain additional credit and therefore increase investments and realize the value of their growth options.
Based on a sample of A-share listed companies from 2001 to 2020, we calculate the Oscore variable and use this to constructs risk groups (Ohlson, 1980). The results from a differences-in-differences research design indicate that the removal of the upper (lower) limit of the loan interest rate enables high-risk (low-risk) firms to obtain more credit at higher (lower) costs than medium-risk firms, and it significantly improves investment flexibility and the value of growth options. The results of parallel trending, falsification, and changing the variable definition and samples confirm the robustness of our empirical findings.
Our academic contributions are as follows. First, we examine the differential impact of removing the upper and lower limits of loan interest rates on firms with heterogeneous risks, which has rarely been investigated in the literature. In addition, by applying a differences-in-differences research design, we largely alleviate concerns of endogeneity. Our research contributes to the literature on how interest rate marketization affects the allocation of credit resources. Second, we investigate the influence of interest rate marketization on financing and investment decisions and, finally, on value creation. Thus, our study increases the understanding of how interest rate marketization affects firm investment and the value of real options and informs the micro-transmission mechanism of interest rate marketization. The removal of the upper and lower limits of loan interest rates provides us with an opportunity to examine how exogenous changes in the financing environment affect the value of growth options, thus enriching research into the value of real options (Hao et al., 2011; Chen et al., 2015). Third, research identifies the mechanism through which stock price guides capital allocation and investments (Chen et al., 2003), whereas we examine how the removal of interest rate regulations affects credit allocation, firm investment, and value creation. Our findings reveal how interest rates can be used as price mechanisms for credit and guide the allocation of credit resources and the operation of the real economy, thus extending the literature.
Based on the above research findings, we offer the following policy recommendations. First, regulatory authorities should focus on improving the formation and transmission mechanism of market-oriented interest rates and credit allocation efficiency in their reforms. Second, any blocks on the transmission channels of loan interest rates should be removed to increase the convenience of enterprise financing so that finance can serve and support the real economy and promote the high-quality development of firms and the macro economy.

In the complex, volatile domestic and international economic situation in recent years, China has actively used various economic policies to establish macroeconomic control, with good results. As an important intermediary of macroeconomic policy transmission, the risk profile of commercial banks is highly sensitive to policy continuity. In this context, it is of great practical significance to study how policy continuity affects the systemic risk of commercial banks to forestall systemic financial risks.
Using unbalanced panel data from 32 listed banks in China from Q1 2007 to Q4 2019, we empirically test the impact of policy continuity on bank systemic risk. The results show that enhancing policy continuity significantly reduces bank systemic risk. To clarify the impact path, we decompose systemic risk into two dimensions: individual bank risk and individual bank-system correlation. The results show that an increase in policy continuity reduces both individual bank risk and individual bank-system correlation. On the one hand, further analyses show that while policy continuity increases banks' willingness to take risks, it reduces their actual risk level. On the other hand, while policy continuity has no significant impact on interbank business, which helps to strengthen the degree of direct interbank correlation, it can reduce the degree of banks' indirect correlation by reducing the similarity of their asset allocations. The effect of policy continuity on reducing bank systemic risk is greater when the real economy is down and monetary policy is accommodative. The systemic risk for commercial banks with higher insolvency risk and lower information transparency is more affected by policy continuity than banks with a lower insolvency risk and higher information transparency. In addition, by distinguishing between different types of economic policy continuity, we find that the policy continuity in monetary, fiscal, exchange rate, and capital accounts of banks significantly reduce bank systemic risk, while monetary policy continuity has the strongest impact on bank systemic risk.
The contributions of this paper are as follows. First, our results expand the literature on the financial risk consequences of policy continuity. While most scholars examine the impact of policy continuity on individual bank risk from a microprudential perspective, we examine the impact of policy continuity on bank systemic risk from a macroprudential perspective. Second, our findings enrich the literature on the factors influencing bank systemic risk. Most scholars focus on examining the influential factors for systemic risk at the micro bank level, while fewer scholars examine the relationship between the external macro environment and bank systemic risk. Third, we illuminate the paths and conditions under which policy continuity affects bank systemic risk through systemic risk decomposition, heterogeneity analysis, and differentiation between different types of policy continuity.
We draw the following policy insights. First, relevant departments should maintain the continuity, stability, and sustainability of their economic policies, especially major policy directions. Meanwhile, the policy interpretation and explanation mechanism should be improved further to enhance the transparency of economic policies. Second, commercial banks should track policies better to improve their forecasting, strengthen their prudent operations through sound development, seek differentiated and distinctive development paths, and improve their quality of information disclosure to enhance their overall ability to adapt to policy adjustments. Third, banking regulators should strengthen their prudential supervision of commercial banks during periods of frequent policy adjustments. On the one hand, banking regulators should prospectively guide commercial banks to make adjustments according to policy changes, with particular attention to banks with high financial risks and low information transparency. On the other hand, banking regulators should encourage commercial banks to differentiate their operations, promote the development of a multilevel, diversified banking service system, and increase the financial resilience of the banking sector.

Previous studies generally assume that investors allocate their financial assets with the exclusive aim of maximizing their narrowly defined self-interest according to risk and return analysis, with no thought for society. However, this “economic man” hypothesis fails to take account of social changes or responsibility, as it assumes that society as a whole is static and that individuals need only comply with existing social norms when participating in transactions. In reality, however, society evolves dynamically, and all members of society participate and engage in the gradual change of social norms.
Any examination of the framework of investor behavior must therefore consider the interactions between members of society, and how individuals perceive these interactions. This means that we must account for the fact that investors' decision-making regarding risky assets is influenced by their pro-sociality. To do so, we must explore beyond self-interest.
Pro-sociality can be divided into three dimensions: social concerns, social trust, and social interaction. Our study uses social donation expenditure and gift expenditure as proxy variables to measure the level of pro-sociality. The more a household spends on social donation expenditure and gift expenditure, the higher the head of the household's level of pro-sociality. Then, we discuss the risk-taking willingness of investors and its relationship with pro-sociality.
Existing research regarding factors influencing household risky investment verifies that important individual factors include income level, demographic characteristics and health status, risk attitude, occupational risk, and property ratio. Our research aims to contribute to the literature on household investment behavior from the new perspective of pro-sociality.
Exploiting data from the 2012 and 2014 China Family Panel Studies (CFPS), we empirically analyze the impact of pro-sociality on household risky investment. Using the responses to relevant items in the CFPS, we construct a series of explained variables for household risky asset allocation. In addition to pro-sociality as the primary explanatory variable, we control for demographic characteristics (e.g., sex, age, physical health status), household characteristics (e.g., income level, household demographic structure), and province and year fixed effects.
The results show that the pro-sociality of household heads has a significant positive impact on household investment in risky financial assets. This effect remains significant after accounting for possible endogeneity problems.
Subsequently, we examine the robustness of our findings. First, we limit the sample to households with an increased level of pro-sociality in 2014. Second, we add extra variables that could reflect the level of risky investment by households. Third, we examine the impact of pro-sociality on the absolute and relative levels of risky investment. The regression results show that our conclusions are robust.
Finally, we examine whether the effect is heterogeneous across samples with different characteristics. According to the regression results, the pro-sociality of householders has a more significant impact on household risky investment in the non-agricultural household, Internet user, and risk-loving groups than in the agricultural household, non-Internet user, and risk-averse groups.
Our study contributes to the literature in two ways. (1) This study avoids using the traditional “economic man” assumption by investigating household risky investment from a novel perspective, namely that individuals' pro-sociality is naturally reflected in the process of responding to and promoting new social norms. (2) This study examines pro-sociality in three dimensions—social interaction, social trust, and social concerns—and uses social donations as a proxy variable to empirically analyze the impact of pro-sociality on household risky investment behavior, thus indirectly proving that the our construct of pro-sociality is meaningful.
The study has implications for government departments, as it shows that they should take account of the influence of pro-sociality on policy effectiveness when formulating policies concerning social responsible investment.

Funds that circulate within the financial sector without entering the real economy restrict the high-quality development of China's economy. The key to solving this problem lies in identifying the motivations behind enterprise financialization and devising corresponding solutions. This study investigates the influence of the participation of the Communist Party of China in corporate governance on the financialization of state-owned enterprises, a topic of great theoretical and practical significance.
We build a theoretical framework to analyze the effect of Communist Party participation in corporate governance on state-owned enterprise financialization from three dimensions of motivation: precautionary motivation, speculative motivation and earnings management motivation. We find that Communist Party participation reduces the uncertainty of economic policy, thus restraining precautionary motivation; corrects for managerial short-sightedness and improves managerial ability to tolerate and correct mistakes, thus restraining speculative motivation; and weakens the compensation incentive function of management teams while strengthening their supervisory effect, thus inhibiting earnings management motivation. Overall, the participation of the Communist Party in governance can reduce the level of financialization of state-owned enterprises.
Empirical tests are conducted based on samples of Chinese A-share state-owned listed companies from 2006 to 2018. The results show that the participation of the Communist Party reduces the degree of financialization of state-owned enterprises, and this result remains robust to an instrumental variable test, a propensity score matching-difference-in-differences test and a Heckman two-stage test. Mechanistic tests show that financial asset allocation by corporate shadow banking is the speculative motivation for corporate financialization, whereas non-shadow banking financial asset allocation is the precautionary motivation for corporate financialization. Communist Party participation in governance significantly inhibits both speculative motivation and earnings management motivation for financialization, but has no significant effect on precautionary motivation. A heterogeneity test shows that this effect is more significant after (than before) the implementation of “pre-discussion” arrangements, and is more significant in central state-owned enterprises than in local state-owned enterprises. We also find that the representation of Communist Party members on boards of directors can effectively reduce the financialization of state-owned enterprises, whereas the representation of members on boards of supervisors and managers has no significant impact. Further tests show that Communist Party participation has no significant impact on the return rate of financial assets but significantly improves the market value of risky financial assets, which indicates that capital market investors recognize the positive effect of the Communist Party on the governance of state-owned enterprises.
The implications of the study are as follows. First, full play should be given to the leading role of party organizations, as this will remedy the defects of traditional corporate governance structures. Second, tailored policies should be used, rather than a “one-size-fits-all” approach, to improve firms' financialization. Third, a “pre-discussion power list” should be compiled and used in pre-discussions, to maximize the benefit obtained from these pre-discussions. Fourth, the governance capacity of the Communist Party in local state-owned enterprises requires further improvement. Fifth, the efficiency of board-of-supervisors' participation in corporate governance must be improved. Sixth, Communist Party participation in corporate governance can enhance the value of risky financial assets held by state-owned enterprises, indicating that investors in the capital market recognize the value of the Party's participation in corporate governance. This serves as practical verification of the theory of corporate governance of state-owned enterprises with Chinese characteristics.

Two or more natural persons, legal persons or other organizations take concerted action when they express the same intention when exercising their voting rights through agreements, cooperation and related-party relations. Concerted action is thus the centralized allocation of voting rights. According to listed companies' annual reports, at least 773 listed companies experienced some form of concerted action by minority shareholders from 2008 to 2018. This implies that concerted action has become a means by which minority shareholders can participate in corporate governance and safeguard their own equity interests in the era of equity decentralization.
This study empirically investigates how minority shareholders actively participate in corporate governance by exhibiting concerted action under existing laws and articles of association. The study first examines the ultimate economic consequences of concerted action by minority shareholders. The results show that concerted action helps minority shareholders concentrate their voting rights, check and balance the activities of major shareholders and managers, and ultimately improve corporate performance. The mechanistic analysis shows that concerted action improves performance in two distinct ways. First, concerted action strengthens the influence of minority shareholders in general meetings of shareholders and on boards of directors. This is reflected in the improved effectiveness of minority shareholders' proposals and influence on the appointment of directors when these shareholders act in a concerted fashion, compared to when they do not. Second, concerted action strengthens minority shareholders' role as a check and balance on controlling shareholders and managers. This is reflected in concerted action by minority shareholders leading to a reduction in “tunnel excavation” behavior by controlling shareholders and an increase in CEO turnover, relative to when there is no concerted action by minority shareholders.
Based on a study of the economic consequences and mechanisms of concerted action, this study examines the heterogeneity of its effects in improving corporate performance. It is found that the positive effect of concerted action on performance is affected by the shareholding ratio of persons acting in concert, the motivation for the concerted action, the company voting system and the type of persons acting in concert. Specifically, the ability of concerted action by minority shareholders to improve corporate performance is strengthened if the following three conditions exist: the total shareholding ratio of persons acting in concert is moderate, participating in governance rather than competing for control is what motivates the persons acting in concert, and companies adopt a cumulative voting system.
This study provides empirical evidence on the effect of concerted action on corporate governance, including the mechanism and heterogeneity of concerted action. In contrast to previous literature focusing on minority shareholders' online voting, this study examines how minority shareholders protect their own rights by concerted action, thereby extending our understanding of the protection of investors' rights and interests. Additionally, whereas previous studies mostly focus on the concerted action of entrepreneurial teams, this study is conducted from the perspective of minority shareholders. The results show that concerted action acts as a check and balance on the actions of controlling shareholders and managers, and thereby improve company performance. Therefore, this study provides theoretical and practical insights that contribute to a comprehensive understanding of the governance role of persons acting in concert.
This study has specific policy implications for the protection of the interests of minority shareholders in corporate governance practice. First, minority shareholders can use concerted action as a tool to check and balance the actions of controlling shareholders and thus safeguard their own interests. Second, regulators should encourage investors to make innovative use of existing corporate governance mechanisms, such as voting rights, to actively participate in the governance of listed companies. Third, listed companies should adopt systems that are conducive to the exercise of rights by minority shareholders, such as cumulative voting, to give full play to the positive effect of such shareholders' concerted action. Finally, investors should identify the motivations of shareholders' concerted action, as this may prevent such action being taken too frequently and thus obscuring control rights competition and governance inefficiency.

Under high volatility, given the limited short selling opportunities in China's A-share market, futures and options products are essential to meet the strong investor demand for risk hedging. However, there are few studies on the type of risk hedging strategies or stock index futures that are suitable for China's A-share market. This paper studies one such optimal risk hedging strategy: trading open-end index funds (ETF) under ambiguity aversion and with transaction costs.
The goal of a hedging strategy is to improve investment performance by adjusting the risk exposure of a portfolio at low cost. Garleanu and Pederson (2013) analyze the liquidity cost of stock spot and futures trading and the impact of their differences on hedging strategies. Under the condition of investors' ambiguity aversion, Garleanu-Pederson identify novel characteristics that can improve investment performance and reduce transaction costs (Zhang et al., 2019). However, there are few studies of futures hedging strategies under ambiguity aversion.
The contributions of this paper are as follows. First, this paper introduces ambiguity aversion into the hedging strategy of stock index funds and examines the influence of ambiguity aversion on the optimal position of securities given restrictions on futures trading. Second, this paper distinguishes between the transaction costs of stock index futures and ETFs and considers the interaction of transaction costs and investors' ambiguity aversion within Garleanu-Pederson's model. It finds that ambiguity aversion reduces the transaction costs caused by wrong investment decisions and improves investment performance. Third, this paper separates the independent disturbance term of ETF yield from stock index futures, to further distinguish the effects of ambiguity aversion on the disturbance term and futures.
Ambiguity aversion and transaction costs are introduced into the Garleanu-Pederson framework to construct a theoretical model of the dynamic hedging of stock index funds. Then, the model is tested using a dataset of China's ETF portfolio and stock index futures. According to the model, if the estimations of ambiguity aversion and transaction cost parameters are reasonable, the performance of an investment portfolio based on a hedging strategy will be better than one based on a non-hedging strategy, the ratio of dynamic optimal trading volume to aim trading volume will be smaller, and the target trading volume will be more sensitive to the expected return predictor. This paper uses ETF and stock index futures data from China's A-share market from April 2010 to June 2021 to empirically test the above reasoning. There are three main results. First, a hedging strategy can significantly improve investment performance, and restrictions on stock index futures trading weaken this effect. Second, the decrease in transaction costs and the flexibility of target position adjustment are the main channels of investment performance improvement. Third, relative to previous studies, such as Garleanu and Pederson (2013) and Zhang et al. (2019), this paper's findings are more robust and highlight the characteristics of sensitivity.
The findings have implications for the development of China's derivatives market. First, continuously enriching the product series of stock index futures and stock index options should become the key issue of capital market infrastructure construction. Second, although using a risk hedging strategy on stock index futures to implement ETF produces better performance than using a non-hedging strategy, trading restrictions on stock index futures weaken this effect. Therefore, the reduction of transaction costs and arbitrage constraints should be promoted, so as to improve the ability of institutional investors, such as funds, to use derivatives to manage risk and create value.

The relationship between formal and informal finance is not only an important academic issue but is also crucial for China's financial system reform. Formal finance has been extensively examined because of its primary role in financing, stabilizing markets, and promoting economic growth. The policies of many emerging economies are aimed at replacing informal with formal finance. However, although informal finance carries a potential risk, it is widespread and important to small and medium-sized enterprises, households, and developing countries, particularly when the financial market is incomplete or has stringent financing restrictions. Thus, clarifying the value of informal finance is important when formulating regulatory policies.
In this study, we discuss the relative efficiency of formal and informal finance and their determinants by establishing a theoretical framework from the perspective of institutions of information and enforcement. We also clarify their roles in the various stages of economic development, and note the contributions and challenges in the empirical literature. We then discuss how to improve the efficiency of formal and informal finance by considering China's unique features, and conclude with suggestions for future research. The institutional perspective reflects the financial attributes of formal and informal finance and provides a basic framework for studying related academic and policy issues.
We suggest that formal finance involves a relatively complete credit system and relies on the legal system as its enforcement institution. Informal finance generally does not have standardized procedural information and enforcement institutions, and it depends on reputation, relationships, and social networks. Formal and informal finance both have unique advantages because of these differences in information and enforcement institutions. Formal finance is easy to regulate and expand, but it is relatively slow to adjust. Informal finance can easily be adapted to economic changes but is difficult to regulate and limited to regional and interpersonal networks. The relative efficiency of formal and informal finance depends on the corresponding social network and the credit and legal systems at the various stages of economic development. The inconsistencies in the literature are mainly due to differences in classification methods, sample limitations, and identification.
Developed economies have high degrees of predictability, relatively effective credit systems, and highly efficient legal systems. Thus, formal finance plays a major role in supporting economic activity and development and thus substitutes for informal finance. Rapidly developing economies often have unpredictable shocks, and so informal finance can be more easily adapted to the changing market environment without persuading the legislature to amend laws. Historical social networks and business relationships are also important foundations of informal finance. Thus, informal finance is an important financing channel in rapidly developing economies and complements formal finance. In underdeveloped areas, formal financial systems and capital markets are typically undeveloped. Both formal and informal finance are therefore important for economic development and should be encouraged.
Finance and growth are subjects of debate in both academic research and policy discussions. The efficiencies of formal and informal finance are typically compared in terms of their contributions to enterprises and economic growth; few institutional analyses of formal and informal finance in the different stages of economic development have been conducted. Establishing institutional measurements for formal and informal finance can thus be of benefit to investigate the mechanisms that affect their relative efficiency in different stages of economic development.