Working Papers
[1] “How Do Firms Withstand A Global Economic Shock: Evidence From Within-Firm Responses”, with V. Fos and W. Jiang
- Imperial College London, the University of Oxford, NBER China Conference, UCLA, China Financial Research Conference, University of Oregon Summer Finance Conference, Virtual Corporate Finance Seminar, Ohio State, ABFER webinar, RCFS Winter Conference
This paper examines the effects of economic shocks originating from China’s Five-Year Plans on firms’ shareholders and stakeholders in the U.S. Using establishment-level data, we show that the shocks were not preceded by low production or employment, nor were they anticipated by the U.S. stock market, but were followed by shrinkage of targeted sectors. Well-financed firms with adaptable sectorial and territorial layouts came out mostly unscathed due to within-firm adjustments, such as shifting production to upstream or downstream industries that benefited from the boost in the focal industries in China, or offshoring to encouraged industries in China. These adjustments extended limited benefits to employees and communities, measured by employment and opioid usage.
- Management Science, 2023
- SFS Cavalcade, Northeastern University Finance Conference, University of Connecticut Financial Risk Conference, Chapman University Money and Finance Conference, NFA
- Featured in AAII journal
- SFS Cavalcade, Northeastern University Finance Conference, University of Connecticut Financial Risk Conference, Chapman University Money and Finance Conference, NFA
- Featured in AAII journal
Using proprietary individual-level trading data around a natural experiment—the release of a smartphone trading app by a large investment advisor—this study investigates how smartphone trading technology affects retail investor behavior and mutual fund performance. App adoption by retail investors leads to an increase in investor attention and trading volume. App adopters’ flows become more sensitive to short-term fund returns and market sentiment, resulting in higher aggregate flow volume among adopters. The funds more exposed to the shock experience a greater decline in abnormal returns, likely attributable to higher fund flow volume and liquidity costs. As a result, both adopters and nonadopters experience a decline in their mutual fund investment returns.
[3] "Fund Flows and Income Risk of Fund Managers", with W. Dou, L. Kogan, and W. Wu
- April 2023
- The constructed dataset is the first-ever to contain detailed information on fund managers' compensation and career history, having been compiled based on the administrative employment data provided by US Census Bureau and leveraging various "big" textual data sources.
- Presented at Texas A&M, NBER Big Data and Securities Markets Conference, Michigan Ross, Colorado Finance Summit, MFA 2024, Adam Smith Workshop (scheduled), FIRS 2024 (scheduled), WFA 2024 (scheduled), EFMA 2024 (scheduled)
- The constructed dataset is the first-ever to contain detailed information on fund managers' compensation and career history, having been compiled based on the administrative employment data provided by US Census Bureau and leveraging various "big" textual data sources.
- Presented at Texas A&M, NBER Big Data and Securities Markets Conference, Michigan Ross, Colorado Finance Summit, MFA 2024, Adam Smith Workshop (scheduled), FIRS 2024 (scheduled), WFA 2024 (scheduled), EFMA 2024 (scheduled)
Abstract: Investment fund managers make asset allocation decisions on behalf of a significant segment of US households. To elucidate the incentives they operate under, as well as the income and career risks they face, we construct a unique and novel dataset, which encompasses detailed information on the compensation and career trajectories of managers within US active equity mutual funds. The dataset is the first-ever to contain such information, having been compiled based on the US Census Bureau’s LEHD program and leveraging various “big” textual data sources. Our causal evidence indicates that, contrary to fund disclosures, managers’ pay is primarily driven by Assets Under Management (AUM), with performance influencing compensation only via AUM. Fund flows, although they do not align with client interests, have a significant 6% positive impact on compensation for every one-standard-deviation increase. Systematic flow components impact base salaries, while idiosyncratic elements alter bonuses. Crucially, fund flows, as opposed to fund performance, exert a strong impact on the career outcomes of fund managers, especially concerning their downside career risk. Specifically, large fund outflows elevate a manager’s likelihood of job turnover (with a substantial decline in income) by 4 percentage points..
- Best paper award, USC Marshall PhD Conference in Finance
- HEC Paris Entrepreneurship Workshop, NFA, Columbia University, NYU, Texas A&M University, University of Houston, Brandeis University, University of Pittsburg, Northeastern University
- HEC Paris Entrepreneurship Workshop, NFA, Columbia University, NYU, Texas A&M University, University of Houston, Brandeis University, University of Pittsburg, Northeastern University
This study investigates how household wealth affects the human capital of startups, based on U.S. Census individual-level employment data, deed records, and geographic information system (GIS) data. Using floods as a wealth shock, a regression discontinuity analysis shows inundated residents are 7% less likely to work in startups relative to their neighbors outside the flood boundary, within a 0.1-mile-wide band. The effect is more pronounced for homeowners, consistent with the wealth effect. The career distortion leads to a significant long-run income loss, highlighting the importance of self-insurance for human capital allocation.
[5] “Corporate Social Responsibility and Employee Retention”, with Y. Qiu and T. Wang
- Revise and Resubmit, Review of Financial Studies
- Presented at Georgia State University, UCLA, Labor and Finance Group Seminar, University of Minnesota, Temple University, MFA, Society of Labor Economists Meeting, Texas A&M University, Philly Five-Star Conference, UNC/Duke Corporate Finance Conference, SFS Cavalcade Conference
- Presented at Georgia State University, UCLA, Labor and Finance Group Seminar, University of Minnesota, Temple University, MFA, Society of Labor Economists Meeting, Texas A&M University, Philly Five-Star Conference, UNC/Duke Corporate Finance Conference, SFS Cavalcade Conference
Utilizing administrative data from the U.S. Census, this study provides first direct empirical evidence on the impact of corporate social responsibility (CSR) on employee retention. Exploring both positive and negative shocks to firms’ CSR policies, our findings reveal a significant impact on the separation rate of CSR-conscious employees within an employer, with no discernible effect on others. Our results suggest that the employer-employee values alignment constitutes an important non-financial job benefit that enhances employee retention. The observed CSR-related employee retention also affects labor productivity, reinforcing the pivotal role of the employee channel in delineating CSR’s broader impact on firm value.
[6] “A Race to Lead: How Chinese Government Interventions Shape the U.S.-China Production Competition", with V. Fos and W. Jiang
- Featured in Bloomberg
- Presented at Columbia University, Yeshiva University, US-China Business Council, CICF, Texas A&M University, UT Dallas Finance Conference
- Presented at Columbia University, Yeshiva University, US-China Business Council, CICF, Texas A&M University, UT Dallas Finance Conference
Integrating establishment-level data from the United States and China, we study dynamic industrial interdependence between the two economies. Births of Chinese firms predict same-industry firm exits and reduced employment in the U.S., but the reverse relationship is not significant. Chinese Five-Year Plans were not preceded by low production/employment in the same industries in the U.S., but were followed by shrinkage with spillovers along the supply chain. Stock returns, firm valuation, and job postings indicate that neither the market nor companies expected deterioration in the targeted industries prior to the announcement of the Plans, but made adjustments afterwards.
[7] “Corporate Diversity Culture Spillover”, with Y. Qiu and T. Wang
- Presented at University of Minnesota, University of Washington, Weinberg/ECGI Corporate Governance Symposium, Virtual Corporate Finance Seminar, FIRS, CICF, Federal Reserve Bank of Philadelphia
We study the spillover of corporate diversity culture among interacting firms. To identify the cultural transmission channels, we explore the entry of a “Million Dollar Plant” (MDP) in a county and examine how the diversity culture of the MDP’s parent company influences the evolution of the diversity culture of local employers and their parent companies. Using data from the U.S. Census, we find that when a more (less) pro-diversity firm opens an MDP in a county, local gender wage gap decreases (increases). Labor market competition is a key channel behind these effects. Next, we examine whether changes in the local employer’s gender wage gap would lead to broad changes in the diversity culture of their parent companies. We find evidence of diversity culture spillover beyond gender wage gap and beyond the MDP entry areas. The spillover is stronger when learning within the internal networks of a local firm is stronger. But broad cultural spillover occurs only when local firms’ top leaders are receptive to the diversity culture of the MDP’s parent company.
[8] “Shareholder Preference and Managerial Risk-Taking Incentive”, with N. Li, C. Tang, J. Wang
- Revise and Resubmit, Journal of Accounting and Economics
This study investigates the relationship between executive compensation and shareholders’ risk preferences, drawing on the theoretical prediction that shareholder-creditor conflicts shape shareholders’ risk appetites. Our primary empirical strategy employs the observation that collateral can influence shareholders’ risk-taking incentives. Using local real estate price changes to identify variations in collateral value, we find that a decrease in collateral value, which amplifies shareholders’ preferences for risk, leads to more risk-taking incentives in compensation. This effect is more pronounced in firms with secured debts, higher distress risk, and without capital expenditure restrictions. In the second empirical setting, we provide corroborating evidence using a natural experiment involving disaster-induced negative shocks. Collectively, our findings suggest that the design of executive compensation incorporates shareholders’ risk-taking preferences and facilitates the incentive alignment between shareholders and managers.
[9] ”Information Access and Asset Allocation: Evidence from Mobile Technology”, with N. Li
- Midwest Accounting Research Conference, Tsinghua University, Renmin University of China, AAA Annual Meeting, Hawaii Accounting Research Conference
We investigate the dynamics of information access behavior and asset allocation decisions using individual-level data from a large mutual fund company. Employing a setting centered on the release of a smartphone trading app, we find that app adoption significantly increases investors’ information access frequency. Following app adoption, investors shift their holdings from bond funds to equity funds. Within adopters, the percentage of equity funds holding is positively associated with app-based logins. We also find that app adoption leads to more frequent equity fund trading and that the effect is more pronounced around major economic news releases. Overall, the results highlight the influence of information costs on investors’ indirect market participation.
Using an exogenous regulatory change that stimulated hedge fund entry in China and increased the competition for talent faced by a subset of mutual funds, this paper documents how intensified competition for talent from hedge funds affects mutual fund returns. The manager turnover rate increases by more than 50% in the affected mutual funds relative to the control group. The excess returns of mutual funds affected by the regulation decline substantially, and the performance deterioration is concentrated in the year after managerial turnovers. The evidence is consistent with the "brain drain" hypothesis. Overall, this paper shows the adverse effect of cross-industry competition on fund returns and highlights the importance of talent in the money management industry.