Personal data security and stock crash risk:Evidence from China’s Cybersecurity Law

Using China’s Cybersecurity Law(CSL)as an exogenous shock,I examine how personal data security affects stock crash risk.I find that the stock crash risk of treatment firms(which collect personal data)significantly decreases after the CSL,and such decrease is larger when firms face greater personal data breach risk and have less transparent information environments before the CSL.Furthermore,treatment firms increase their investment in personal data protection after the CSL.Finally,enhanced personal data security increases firm value and promotes firms’social responsibility to stakeholders.Overall,I provide evidence of the importance of data security for the digital economy from the perspective of capital market stability,which may present implica-tions for data security policy worldwide.

Aims and Scope

The focus of the China Journal of Accounting Research is to publish theoretical and empirical research papers that use contemporary research methodologies to investigate issues about accounting,corporate finance, auditing and corporate governance in the Greater China region, countries related to the Belt and Road Initiative,and other emerging and developed markets.

The costs of socializing with government officials:A new measure of corporate political connections

We construct a new measure to capture corporate political connections, which is based on the amount a corporation spends on socializing with government officials. We examine the validity of this measure using the exogenous turnover of top local officials and find that firms increase their political networking expenditures when top local officials are replaced. Compared to state-owned enterprises(SOEs), non-state-owned enterprises(non-SOEs) react more aggressively to changes in local officials, which implies that non-SOEs have stronger incentives to build political connections with officials through social intercourse. We also find that firms located in regions with low levels of marketization react more aggressively to the turnover of local politicians. In addition, we find a positive effect of corporate political socializing expenditures on corporate performance and valuation, which suggests that political connections built through social intercourse benefit corporations.

Examining export trade and corporate innovation:A multiphase difference-in-differences method

Using a multiphase difference-in-differences model, this study investigates the relationship between export trade and the corporate technological innovation of listed companies. It reveals that engaging in export trade increases corporate innovation input and output. In terms of patent output, export trade greatly promotes the output of invention patents and utility model patents with a high technological content. These conclusions remain valid after a series of robustness and endogeneity tests. Regarding the mechanisms of the observed relationships, export trade stimulates corporate technological innovation mainly by realizing economies of scale and increasing risk-taking. The positive correlation between export trade and corporate technological innovation is strongest among state-owned enterprises, non-high-tech enterprises, enterprises based in central and eastern China, enterprises engaged in general trade, and enterprises exporting to developed economies. Given the growing trade frictions ongoing at the time of writing, the conclusions of this study provide vital practical guidance and empirical evidence for a national strategy of innovation-driven development.

Female CFOs and loan contracting: Financial conservatism or gender discrimination? – An empirical test based on collateral clauses

Based on signaling and gender discrimination theory, we examine whether chief financial officer(CFO) gender matters to bank–firm relationships and the designing of collateral clauses in bank loan contracting, and explore the potential path of influence. Data taken from Chinese listed companies between2009 and 2012 indicate that(1) female-CFO-led firms are less likely to obtain credit loans than male-CFO-led firms;(2) female-CFO-led borrowers are more likely to be required to provide collateral for loans than male-CFO-led borrowers; and(3) banks are more inclined to claim mortgaging collateral when lending to female-CFO-led firms and prefer to guarantee collateral when lending to male-CFO-led firms. Female-CFO-led borrowers seem to be granted more unfavorable loan terms than male-CFO-led borrowers, supporting the hypothesis that female CFOs experience credit discrimination. Further analysis reveals that regional financial development helps to alleviate lending discrimination against female CFOs. Furthermore, female CFOs in SOEs are less likely than their non-SOE counterparts to experience gender discrimination in the credit market.

Corporate governance and firm value: Evidence from Chinese state-controlled listed firms

The association between corporate governance and firm value has been extensively studied in Chinese listed firms. Based on the characteristics of their ultimate shareholders, Chinese listed firms can be categorised as(1) central statecontrolled,(2) local state-controlled or(3) non-state-controlled. Some scholars have described Chinese government policy as ‘zhuada fangxiao', thus suggesting that the corporate governance mechanisms(CGMs) of central state-controlled listed firms(SCLFs) are better than those of local state-controlled listed firms. Therefore, this paper specifically examines the influence of CGMs on the value of central SCLFs and local SCLFs. Analysis of 2006 firm-year observations from 2007 to 2009 suggests that the aggregate ownership of other large shareholders and the remuneration of top executives exhibit different effects on firm value in central and local SCLFs. The results also provide evidence that there is no endogenous effect of firm value on the ownership of the largest shareholder in central and local SCLFs.

Aims and Scope

The focus of the China Journal of Accounting Research is to publish theoretical and empirical research papers that use contemporary research methodologies to investigate issues about accounting,corporate finance,auditing and corporate governance in the Greater China region,

Margin trading, short selling, and bond yield spread

Using a quasi-natural experiment, this study examines the effects of margin trading and short selling on bond yield spread in China. It finds that both margin trading and short selling can reduce bond yield spread. Additionally, it finds that margin trading lowers firms' debt ratios and increases their credit ratings, which explains the reduced spread. In other words, margin trading can impact investors' decisions by revealing positive information about a firm.Another finding is that short selling lowers the bond yield spread by decreasing earnings management, suggesting that short selling has an impact on investors' decisions through its effect on corporate governance. Our results suggest that margin trading transmits positive information and short selling impacts firms' policies. These results provide support for future regulations of margin trading and short selling.

Can media exposure improve stock price efficiency in China and why?

The media in China has undergone extensive commercialization to become more market-driven over the last 35 years. Based on a sample of over two million newspaper articles, this study investigates whether the media in China has an incremental impact on stock price efficiency. We find that: as media coverage of a firm increases,(1) its stock price synchronicity decreases;(2)the probability of informed trading of its stock increases; and(3) the extent to which its stock price deviates from random walk decreases. Our interregional analysis over thirty-one provinces/regions within China reveals that the effects of the media on decreasing stock price synchronicity, increasing the probability of informed trading, and reducing stock price deviation from random walk are stronger in regions of weaker institutional development.Our findings suggest that a market-driven media can play the role of compensating for the underdeveloped governance institutions in transitional economies such as China.

Aims and Scope

The focus of the China Journal of Accounting Research is to publish theoretical and empirical research papers that use contemporary research methodologies to investigate issues about accounting,finance,auditing and corporate governance in China,the Greater China region and other emerging markets.The Journal also publishes insightful commentaries about China-related accounting research.The Journal encourages the application of economic

Political governance in China's state-owned enterprises

State-owned enterprises(SOEs)are both the economic and political bases of the Chinese Communist Party(the Party)and the Chinese state.The overarching principle of SOE reform is to firmly implement the Party’s leadership and the modern enterprise system.This principle creates a political governance system in China’s SOEs—a Party-dominated governance system characterized by Party leadership,state ownership,Party cadre management,Party participation in corporate decision-making,and intra-Party supervision.This survey explains the logic of political governance in China’s SOEs,presents the evolution and current practices of each element of the system,and discusses findings from both academic research and the field.

The effect of affiliated analysts on stock recommendations: Evidence from share pledges in China

We use the share pledge context in China to examine how affiliated analysts whose securities companies are pledgees of share pledge firms issue stock recommendations on these listed firms.We find that their recommendations are more optimistic than those of non-affiliated analysts,and they are more likely to issue Buy and Add recommendations,suggesting that they issue optimistic rating reports for share pledge firms due to their conflicts of interest.We also find a dynamic adjustment in the stock recommendation behavior of these analysts,and their probability after issuing optimistic stock recommendations is significantly reduced before and after the years that the affiliation relationship between them and share pledge firms both began and ended.These affiliated analysts continue to issue optimistic stock recommendations after visiting the share pledge firms if they work in the same location as the firms,or if they are star analysts among New Fortune’s‘‘top five analysts,"and when the information transparency of the share pledge firms is higher.In addition,the optimistic stock recommendation behavior of affiliated analysts is more significant in our sample of firms with high share pledge ratios and downward stock price pressure.The earnings forecast quality of affiliated analysts is also found to be lower,and they are less inclined to downgrade stock recommendations for these share pledge firms.Buy recommendations issued by both nonaffiliated and affiliated analysts can bring cumulative excess returns in the short event window,but those issued by affiliated analysts are significantly negative in the long-term event window,and significantly lower than those issued by non-affiliated analysts.Overall,our study shows that affiliated analysts issue optimistic rating reports on share pledge firms due to conflicts of interest,which leads to decision-making bias in investors and thus decreases the stock price crash risk of the firms.Our findings further reveal the economic consequences of share pledging and extend our understanding of the behavior of analysts in a conflict of interest situation from the share pledge perspective.

Inflation, operating cycle, and cash holdings

A corporate cash-holding strategy is a trade-off between the costs and benefits of holding cash.At the macrolevel,firms are inclined to adjust and optimize their cash-holding strategies in response to changes in purchasing power due to inflation.At the microlevel,the operating cycle,which indicates the speed and turnover of corporate cash flow,also influences the corporate cash-holding strategy.Firms flexibly adjust their cash-holding strategies in response to changes in the internal and external environment,which is referred to as the cash adjustment strategy.We examine these predicted relationships using a sample of listed firms in China’s stock market over the 1998–2009 period.Consistent with our predictions,the empirical results indicate a significant negative association between cash holdings and the CPI,but the relationship is reversed when the CPI reaches a certain level.There is also a U-shaped relationship between operating cycle and cash holdings,and this relationship is similarly influenced by changes in the inflation level.In examining the macroeconomic environment and microlevel firm-specific characteristics simultaneously,our findings supplement the literature on firms’cash-holding strategies and provide theoretical and practical implications.

The role of cross-listing,foreign ownership and state ownership in dividend policy in an emerging market

In this paper, we investigate if dividend policy is influenced by ownership type.Within the dividend literature, dividends have a signaling role regarding agency costs, such that dividends may diminish insider conflicts(reduce free cash flow) or may be used to extract cash from firms(tunneling effect)- which could be predominant in emerging markets. We expect firms with foreign ownership and those that are listed in overseas markets to have different dividend policies and practices than those that are not, and firms with more state ownership and less individual ownership to be more likely to pay cash dividends and less likely to pay stock dividends. Using firms from an emerging economy(China), we examine whether these effects exist in corporate dividend policy and practice. We find that both foreign ownership and cross-listing have significant negative effects on cash dividends, consistent with the signaling effect and the notion of reduced tunneling activities for firms with the ability to raise capital from outside of China. Consistent with the tunneling effect, we find that firms with higher state ownership tend to pay higher cash dividends and lower stock dividends, while the opposite is true for public(individual) ownership.Further analysis shows that foreign ownership mediates the effect of state ownership on dividend policy. Our results have significant implications for researchers, investors, policy makers and regulators in emerging markets.

Coping strategy of independent directors for job-fulfillment risk under different ownership types and enforced legal environments

Ownership type,legal system evolution and their interaction significantly affect the incentives and behaviors of independent directors.We use the 2019 Securities Law revision as an exogenous shock to examine how state-owned enterprises(SOEs)versus non-SOEs and their independent directors respond to variations in regulatory compliance risk.Following the revision,SOEs are more likely to purchase directors’and officers’liability insurance to provide job security for independent directors.Non-SOEs are more likely to compensate for independent directors’fulfillment risk by increasing salaries and their independent directors are more likely to resign to avoid litigation risk.The coping strategies for SOEs,non-SOEs and independent directors are dynamic under different compliance risk stages and are affected by firm-level and director-level characteristics.

The effect of fair disclosure regulation on timeliness and informativeness of earnings announcements

This paper examines the effect of Korea's fair disclosure regulation on the timeliness and informativeness of earnings announcements. The present regulation for Korean listed firms requires that if a company's sales revenue, operating income(or loss) and net income(or loss) have changed by over 30%compared to the prior year, the firm must disclose this information through a preliminary financial report(PFR) even before the company is audited by external auditors. To analyze the effects of this policy, we first investigate the timeliness of preliminary financial report disclosures. We examine the extent to which Korean listed companies actually comply with the requirement for prompt notification of information concerning material changes in financial performance. Second, we investigate the informativeness of preliminary financial reports by analyzing differential stock market reactions to different timings of preliminary financial report disclosures. Our empirical results reveal that more than half of our sample firms release their preliminary financialreports after external audits are completed, thereby potentially invalidating the effectiveness of the regulation. In addition, we find that preliminary financial reports have information value only if they are disclosed prior to annual audit report dates. This finding supports the notion that timeliness increases the informativeness of preliminary financial report disclosure by curbing insiders' ability to potentially profit from their information advantage.

Aims and Scope

The focus of the China Journal of Accounting Research is to publish theoretical and empirical research papers that use contemporary research methodologies to investigate issues about accounting,finance,auditing and corporate governance in China,the Greater China region and other emerging markets.The Journal also publishes insightful commentaries about China-related accounting research.The Journal encourages the application of economic and sociological theories to analyze

Trade Credit, Future Earnings, and Stock Returns: A Self-Dealing Perspective

Chinese listed firms are characterized by a great magnitude of long-duration accounts receivable from controlling shareholders and their affiliates,and they often do not make bad debt allowances.On many occasions,these receivables are never collected.We find that firms with a great magnitude of accounts receivable demonstrate a low level of future profitability and low stock returns.It does not appear that the low earnings persistence of these firms is responsible for their poor future performance as predicted by the accrual anomaly,because the firms also report low concurrent earnings.In the context of the Chinese stock market,we interpret the results as being consistent with self-dealing through trade credit by controlling shareholders.This study contributes to the self-dealing literature by identifying a more subtle channel of expropriation of minority shareholders in China.

Conservatism Research: Historical Development and Future Prospects

1.Introduction and Summary Over the last decade,there has been much empirical research on Chinese accounting conservatism.This research started with Ball,Robin and Wu(2000)that was one o the first papers to apply modern research methods to Chinese data.In this paper,survey the early research on conservatism to provide the background and context for discussion of my dissertation paper,Basu(1997).I describe some lessons I have learn from the unexpected success of my dissertation,review recent Chinese research

Stakeholder demands and corporate social responsibility:Evidence from the Olympic Games

We propose that stakeholder demand can explain firms’corporate social responsibility(CSR)activities and empirically test our proposition using 2002–2016 panel data from multiple countries.We select the Olympic Games as our experimental context and use a difference-in-differences design.We find that firms domiciled in countries that host the Olympic Games subsequently experience a significantly smaller increase in CSR commitment than firms in countries that unsuccessfully bid to host the Olympics.We also find that firms domiciled in cities that host the Olympic Games exhibit a significantly smaller increase in CSR than those domiciled in other cities in the same country.Additional tests indicate that firms in host countries with greater increases in the levels of happiness tend to experience an even smaller increase in CSR.Our findings are consistent with the stakeholder demand explanation,as stakeholders are less likely to require local firms to invest in CSR if utilities,such as those from environmental improvement,increase.