Working Papers
| Publication Date: September 2012 |
| JEL Classifcation: D71, D72, D83 |
| Author(s): Jimmy Chan Wing Suen |
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Key words: sequential probability ratio test, optimal stopping, swing voters, collective learning |
| Publication Date: September 2012 |
| JEL Classifcation: D74, D83 |
| Author(s): HENG CHEN YANG K. LU WING SUEN |
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Key words: coordination game, public signals, swing population, mixture distribution, censorship |
| Publication Date: September 2012 |
| Author(s): Wing Suen Kam-Ming Wan |
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| Publication Date: September 2010 |
| Author(s): Ettore Damiano Li Hao Wing Suen |
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| Publication Date: October 2009 |
| JEL Classifcation: D81, F23, F31 |
| Author(s): Rujing Meng Kit Pong Wong |
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Key words: Futures hedging, Multinationals, Optimal stopping problems |
| Publication Date: September 2009 |
| JEL Classifcation: G31, G32, G33 |
| Author(s): Kit Pong Wong |
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Key words: Capital structure, Investment intensity, Investment timing, Real options |
| Publication Date: September 2009 |
| JEL Classifcation: D21, D81, G31 |
| Author(s): Kit Pong Wong |
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Key words: Investment intensity, Investment timing, Irreversibility, Real options |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: March 2009 |
| JEL Classifcation: G30, L20, D53, O16 |
| Author(s): Dongya Li Yi Lu |
Abstract: |
Key words: Trade Credit, Firm Performance, Informal Financing, Financial Institutions |
| Publication Date: January 2009 |
| JEL Classifcation: R12, L25, D21 |
| Author(s): Dongya Li Yi Lu |
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Key words: Industrial Agglomeration, Firm Size, Agglomeration Economies, Urbanization Economies |
| Publication Date: August 2009 |
| JEL Classifcation: J51, P36, D21, L25 |
| Author(s): Yi Lu Zhigang Tao Yijiang Wang |
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Key words: Unions, Labor Productivity, Profitability, Employee Benefits, Transitional Economy, Employment Relations |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: July 2009 |
| JEL Classifcation: L23, D23, P26, K12 |
| Author(s): Julan Du Yi Lu Zhigang Tao |
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Key words: Contract Enforcement, Vertical Integration, Legal Origin, Transaction Cost Economics |
| Publication Date: June 2009 |
| JEL Classifcation: P37, L22, D21, K12 |
| Author(s): Yi Lu Zhigang Tao |
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Key words: Family Control of Business, Contract Enforcement, China’s Private Enterprises |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: March 2009 |
| Author(s): K.C. Fung Alicia Garcia-Herrero Alan Siu |
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| Publication Date: January 2009 |
| JEL Classifcation: I21, J24, P36 |
| Author(s): Jun Han Wing Suen Junsen Zhang |
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Key words: Cultural Revolution, economic transition, interrupted education, human capital re-investment |
| Publication Date: February 2009 |
| JEL Classifcation: E22, G32, P21 |
| Author(s): Clement K.W. Chow Frank M. Song Kit Pong Wong |
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Key words: Investment-cash flow sensitivities, Moral hazard, Soft budget constraints |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: January 2009 |
| JEL Classifcation: F23, F31, D81 |
| Author(s): Donald Lien Maurice K.S. Tse Kit Pong Wong |
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Key words: Options, Futures, Multiple currency risks, Hedging effectiveness |
| Publication Date: August 2008 |
| JEL Classifcation: D21, J31 |
| Author(s): Ariane Breitfelder Udo Broll Kit Pong Wong |
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| Publication Date: June 2008 |
| JEL Classifcation: D21, G33, H25 |
| Author(s): Kit Pong Wong |
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Key words: Liquidation policy, Progressive taxation, Real options, Tax exemption |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: June 2008 |
| JEL Classifcation: D21, D81, G13 |
| Author(s): Kit Pong Wong |
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Key words: Endogenous liquidation, Futures price dynamics, Marking to market, Prudence |
| Publication Date: March 2008 |
| JEL Classifcation: D21, D81 |
| Author(s): Maurice K.S. Tse Kit Pong Wong |
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Key words: Liquidity risk, Tax asymmetries, Futures, Multi-period hedging |
| Publication Date: February 2008 |
| JEL Classifcation: D81, F21, F31 |
| Author(s): Udo Broll Peter Welzel Kit Pong Wong |
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Key words: exports, exchange rate uncertainty, hedging, commitment |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: January 2008 |
| JEL Classifcation: D21, D81, G13 |
| Author(s): Kit Pong Wong |
Abstract: |
Key words: Real options, Investment timing, Uncertainty |
| Publication Date: December 2007 |
| JEL Classifcation: D81, F23, F31 |
| Author(s): Kit Pong Wong |
Abstract: This paper examines the behavior of a risk-averse multinational firm (MNF) under exchange rate uncertainty. The MNF has an investment opportunity in a foreign country. To hedge the exchange rate risk, the MNF can avail itself of customized derivative contracts that are fairly priced. Foreign direct investment (FDI) is irreversible and costly expandable in that the MNF can acquire additional capital at a higher unit price after the spot exchange rate has been publicly revealed. The MNF as such possesses a real (call) option that is rationally exercised whenever the foreign currency has been substantially appreciated relative to the domestic currency. The ex-post exercise of the real option convexifies the MNF’s ex-ante domestic currency profit with respect to the random spot exchange rate, thereby calling for the use of currency options as a hedging instrument. We show that the MNF’s optimal initial level of sequential FDI is always lower than that of lumpy FDI, while the expected optimal aggregate level of sequential FDI can be higher or lower than that of lumpy FDI. We further show that currency hedging, no matter perfect or imperfect, improves the MNF’s ex-ante and ex-post incentives to make FDI, a result consistent with the complementary nature of operational and financial hedging strategies. |
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Key words: Foreign direct investment, Real options, Currency hedging |
| Publication Date: November 2007 |
| JEL Classifcation: G13; L13 |
| Author(s): Kit Pong Wong |
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Key words: Cartel defections; Market demand volatility; Real options |
| Publication Date: April 2007 |
| JEL Classifcation: J21, J31, J64, O53, P20 |
| Author(s): Jun Han Junsen Zhang |
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Key words: Wages, participation rates, unemployment rates, economic transition |
| Publication Date: August 2007 |
| Author(s): Neal M. Stoughton Kit Pong Wong |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: August 2007 |
| JEL Classifcation: D21, D81, G13 |
| Author(s): Kit Pong Wong |
Abstract: This paper examines the optimal design of a futures hedge program for the competitive firm under output price uncertainty. All futures contracts are unbiased and marked to market in that they require interim cash settlement of gains and losses. The futures price dynamics follows a first-order autoregression with a random walk serving as a special case. The firm’s futures hedge program is constituted of an endogenous provision for premature termination, which depends on how the futures prices are autocorrelated. Succinctly, the firm voluntarily commits to premature liquidation of its futures position on which the interim loss incurred exceeds a predetermined threshold level if the futures prices are positively autocorrelated. In this case, the liquidity constrained firm optimally opts for an over-hedge if its preferences exhibit either constant or increasing absolute risk aversion. If the futures prices are uncorrelated or negatively autocorrelated, the firm prefers to be liquidity unconstrained and thus adopts a full-hedge to completely eliminate the output price risk. |
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Key words: Endogenous liquidity, Futures hedging, Marking to market, Production |
| Publication Date: July 2007 |
| JEL Classifcation: D21, D81, G31 |
| Author(s): Kit Pong Wong |
Abstract: This paper examines how the presence of an abandonment option affects a firm’s investment decision in general, and its operating leverage in particular. We show that the value of the abandonment option is a decreasing function of the firm’s operating leverage. Upon the introduction of the abandonment option, the firm as such optimally lowers its operating leverage. We further show that there are direct and indirect effects of the abandonment option on the firm’s optimal investment trigger, which act against each other. First, the ability to shut down production offers downside protection to the firm, thereby making the firm more eager to exercise the investment option. This is the negative direct effect that pushes down the investment trigger. Second, introducing the abandonment option to the firm induces the firm to lower its operating leverage, thereby making the firm more reluctant to exercise the investment option. This is the positive indirect effect that lifts up the investment trigger. We numerically verify that the overall effect of the abandonment option on the firm’s optimal investment trigger is negative. |
More: Published in International Review of Economics and Finance 18 (January 2009), pp. 162-171. |
Key words: Abandonment options, Operating leverage, Investment timing |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: July 2007 |
| JEL Classifcation: D81, F23, F31 |
| Author(s): Kit Pong Wong |
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Key words: Cross-hedging, Multinationals, Prudence |
| Publication Date: June 2007 |
| JEL Classifcation: F1, D2, L6 |
| Author(s): Jiangyong Lu Zhigang Tao |
Abstract: Using data from China’s Annual Survey of Industrial firms from 1998 to 2005, we find strikingly different patterns of firm productivity and exporting behavior between China’s indigenous firms and foreign multinationals operating in China. Among indigenous firms, exporters are more productive than non-exporters, and the more productive firms self-select to become exporters. But the results for foreign multinationals are just the opposite. We then propose an explanation to our findings by expanding the scope of firm heterogeneity from mere productivity differences to include differences in the fixed costs of exporting relative to local sales across firms of different national origins. |
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Key words: Export, Productivity, Firm Heterogeneity |
| Publication Date: June 2007 |
| JEL Classifcation: L33, P31, D23 |
| Author(s): Jiangyong Lu Zhigang Tao Zhi Yang |
Abstract: The rise and decline of China’s collectively-owned enterprises, a hybrid of public and private ownership, has led to intensive debates about the costs and benefits of government ownership. It has been argued that government ownership may help firms gain access to production inputs and infrastructural services, but government officials may use public enterprises to pursue private benefits. From a panel dataset of 13,733 China’s collectively-owned enterprises for the period of 1998-2003, it is found that collectively-owned enterprises, once privatized, encountered an increase in the cost of goods sold to sales ratio but had a decrease in the managerial expenses to sales ratio. These changes in the costs and benefits of government ownership are found to be most significant in the first privatization and take place immediately after the privatization. |
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Key words: collectively-owned enterprises, costs and benefits of government ownership, managerial expenses, and cost of goods sold |
| Publication Date: March 2007 |
| JEL Classifcation: |
| Author(s): Julan Du Yi Lu Zhigang Tao |
Abstract: This paper examines the impacts of economic institutions, including property rights protection and contract enforcement, on the location choice of foreign direct investment. From a data set of 6,288 U.S. multinationals investing in various China’s regions for the period of 1993-2001, it is found that U.S. multinationals prefer to invest in those regions that have better protection of intellectual property rights, lower degree of government intervention in business operations, lower level of government corruption, and better contract enforcement. Our results are robust to alternative measures of economic institutions, and to the inclusion of control variables such as those for agglomeration economies, and other traditional factors of FDI location choice. |
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| Publication Date: June 2007 |
| Author(s): Wing Thye Woo Geng Xiao |
| Publication Date: May 2007 |
| JEL Classifcation: H2, K4, O53, P36, Q50 |
| Author(s): Wing Thye Woo |
Abstract: A hardware failure refers to the breakdown of an economic mechanism, a development that is analogous to the collapse of the chassis of the car. Probable hardware failures are (1) a banking crisis that dislocates production economy-wide, and (2) a budget crisis that necessitates reductions in important infrastructure and social expenditure. A software failure refers to a flaw in governance that creates frequent widespread social disorders that disrupt production economy-wide and discourage private investment. This situation is similar to a car crash that resulted from a fight among the people inside the speeding car. Probable software failures could come from (1) the present high-growth strategy creating so much inequality, and corruption that severe social unrest results; and (2) the state not being able to meet the rising social expectations about governance issues. A power supply failure refers to the economy being unable to move forward because it hits either a natural limit or an externally-imposed limit, a situation that is akin to the car running out of gas or having its engine switched off because an outsider reached in and pulled out the ignition key. Examples of power supply failures are (1) an environmental collapse; and (2) a collapse in China’s exports because of a trade war. My assessment is that the highest probability event in hardware failure is the weakening of China’s fiscal position; the highest probability event in software failure is social disorder, and the highest probability event in power supply failure is water shortage. And my ranking of the probability of these three specific negative events in descending order is social disorder caused by outmoded governance, water shortage as a result of inept environmental management, and fiscal crisis generated by the repeated recapitalization of the state banks and the rapid aging of the population (cont…). |
Key words: harmonious society, governance issues, environmental protection, social disorder, water crisis, fiscal collapse, bank recapitalisation |
| Publication Date: February 2007 |
| JEL Classifcation: D81, F23, F31 |
| Author(s): Kit Pong Wong |
Abstract: |
Key words: Currency hedging, Liquidity contraints, Multinationals |
| Publication Date: May 2007 |
| JEL Classifcation: G3, D21, O16 |
| Author(s): Qiao Liu Alan Siu |
Abstract: In this paper we infer the return on capital from firms’ actual capital expenditures and study how institutions affect corporate investment efficiency through an examination of various crosssections of the inferred return on capital. We apply the Generalized Method of Moments (GMM) estimator derived from a structural investment model to a large sample of Chinese industrial firms. Based on the estimated structural parameters, we compute the stochastic discount rate perceived by managers to decide investment spending. We document robust evidence that ownership is the primary institutional factor affecting the firm-level return on capital in China. The results from our benchmark estimation show that return on capital for a non-state firm is approximately 10 percentage points higher than that of an otherwise similar state firm. We also find that privatization leads to improvement in corporate investment efficiency. Applying the same estimation to the universe of China’s listed firms, we further identify that firms with better corporate governance have higher returns on capital. Our estimates show that redirecting the capital from less efficient state sector to more efficient private sector can unleash a 4.4% GDP growth in China every year, and that the deadweight loss due to capital mis-allocation is about 4% of China’s GDP. |
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Key words: Ownership, institutions and financial development, implied return on capital, investment Euler equation model, Chinese economy |
| Publication Date: April 2007 |
| JEL Classifcation: J10, J23, J24, L16 |
| Author(s): Jun Han Wing Suen |
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Key words: Industry-specific human capital, industry upgrading, sectoral shifts |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: January 2007 |
| JEL Classifcation: J16, J24, J31 |
| Author(s): Junsen Zhang and Pak-Wai Liu Jun Han Yaohui Zhao |
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| Publication Date: January 2007 |
| JEL Classifcation: D81, F23, F31 |
| Author(s): Rujing Meng Kit Pong Wong |
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Key words: Currency hedging, Liquidity constraints, Multinationals |
| Publication Date: November 2006 |
| Author(s): Yang Bai Eric Chang Jiang Wang |
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| Publication Date: December 2006 |
| JEL Classifcation: G3, D21, O16 |
| Author(s): Qiao Liu Alan Siu |
Abstract: This paper presents a new approach to infer return on capital from firms’ capital expenditures, and then examines how institutions and financial development affect this implied return on capital. We apply the Generalized Method of Moments (GMM) estimator derived from a structural investment model to a large sample of Chinese industrial firms in China. Based on the estimated structural parameters, we compute the stochastic discount rate perceived by the managers to decide investment spending. We identify robust evidence that this return on capital measure is a function of variables capturing institutions and financial development. The results from our benchmark estimation show that return on capital for a non-state firm is more than 10 percentage points higher than that of an otherwise similar state firm. We document evidence that regions with better institutions and a market-prone financial system have more efficient non-state sectors. Our estimates show that redirecting the capital from less efficient state sector to more efficient private sectors can unleash a 4.5% GDP growth in China every year, and the deadweight loss due to capital mis-allocation is about 8% of China’s GDP. |
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Key words: institutions and financial development, implied return on capital, investment Euler equation model, Chinese economy |
| Publication Date: October 2006 |
| JEL Classifcation: R12, H7, F1 |
| Author(s): Chong-En Bai Zhigang Tao Yueting Sarah Tong |
Abstract: Fiscal decentralization introduced as part of China’s economic reform since 1979 has unleashed strong incentives for China’s local governments to pursue economic development, but the same incentives have also led to local protectionist policies inhibiting the process of regional specialization. This paper focuses on the constraints or freedom with which local governments can implement their protectionist policies. Using a panel data of 29 China’s regions over the time period of 1985-1997, we find that China’s political system of bureaucratic integration (specifically, concurrent appointment of local government officials in the central government) imposes constraints on the local governments from practicing protectionism. We also find that the effectiveness of local protectionist policies is limited by market competition, specifically, competition from foreign-invested firms operating in China and foreign imports. Our results on the role of local protectionism remain robust to controls for the regional variations in the size of the economy and the stage of economic development. |
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Key words: Local protectionism; regional specialization; bureaucratic integration; foreign competition; stage of development |
| Publication Date: September 2006 |
| JEL Classifcation: |
| Author(s): Hon-Kwong Lui Wing Suen |
Abstract: Public housing represents a sizable subsidy to housing cost and it has to be strictly rationed among competing users. When rationing occurs, resources may not be allocated to their most valuable uses because people cannot effectively convey the intensity of their preferences. This study investigates the hidden costs of public housing from the perspective of the misallocation of housing units to tenants and examines how this misallocation affects these tenants’ lives. This paper shows that public housing occupants are more immobile than private housing occupants. Conditional on moving, however, public housing occupants are more likely than their private housing counterparts to have to move farther away from their original district or region of residence. Due to the lack of choice and mobility, public housing occupants are also less likely to work in the same district or region as their place of residence. |
More: Published in Journal of Housing Economics 20 (2011), pp. 15-29. |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: July 2006 |
| JEL Classifcation: D21, D81, G13 |
| Author(s): Kit Pong Wong |
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Key words: Real options; Investment timing; Uncertainty |
| Publication Date: April 2006 |
| JEL Classifcation: D81, F23, F31 |
| Author(s): Kit Pong Wong |
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Key words: Cross-hedging; Regression dependence; Relative risk aversion |
| Publication Date: June 2006 |
| JEL Classifcation: G1, M4 |
| Author(s): Qiang Kang Qiao Liu Rong Qi |
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Key words: aggregate discretionary accruals, time-varying risk premium, predictive regressions, equity market timing hypothesis |
| Publication Date: February 2006 |
| JEL Classifcation: G14, G34, D80, J33 |
| Author(s): Qiang Kang Qiao Liu |
Abstract: This study documents that changes in credit ratings significantly affect chief executive officer’s (CEO’s) pay-performance sensitivity. Modeling credit ratings changes and changes in CEO incentive levels as jointly endogenous, we identify significant and robust evidence that CEO incentives tend to increase subsequent to the downgrades of credit ratings, and decrease after the upgrades. We also find that the effect of credit ratings changes on CEO incentives is stronger for larger firms, for firms with investment grade debts and larger presence of institutional investors, and for firms whose investors have less access to public information. More importantly, we find the credit ratings changes have larger impact on CEO incentives for firms whose CEOs have been either over- or under-compensated previously. Our empirical findings suggest that rating agencies’, or more generally, debt-holders’, disciplines complement equity-based incentive pay to resolve agency conflicts between managers and stakeholders. |
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Key words: credit ratings changes, CEO incentives, corporate governance |
| Publication Date: June 2006 |
| JEL Classifcation: J31, J41, P23, O53 |
| Author(s): Sylvie Démurger Martin Fournier Li Shi and Wei Zhong |
Abstract: The massive downsizing of the state-owned sector and the concomitant impressive growth of the private sector at the end of the 1990s have altered the nature of the Chinese labor market. By bringing in more competition and market mechanisms, they have contributed to increasing labor turnover and competitiveness in market wages. Using two urban household surveys for 1995 and 2002, this paper analyzes the evolution of labor market segmentation in urban China, by applying an extended version of Oaxaca-Blinder decomposition methods. During the 7-year period, the sharp increase in earnings for all workers however shows substantial differences across ownership, economic sectors, and regions. We find strong evidence of a multi-tiered labor market along these three major lines and highlight increasing segmentation within each of the three dimensions, the gap between the privileged segments of the labor market and the most competitive segments widening over time. |
More: Published in Asian Economic Papers 5 (January 2007) pp. 58-101. |
Key words: labor market, earnings differentials, segmentation, China |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: March 2006 |
| JEL Classifcation: C91; D63 |
| Author(s): Sau-Him Paul Lau Felix Leung |
Abstract: In the Stackelberg duopoly experiments in Huck et al. (2001), the followers behave less timidly than predicted by conventional theory and the leaders act less aggressively than predicted. We provide a parsimonious explanation to these anomalies by simplifying the model of Fehr and Schmidt (1999) in two directions — there is no advantageous inequality aversion and all players with non-standard preferences have the same degree of disadvantageous inequality aversion. Maximum likelihood procedures show that the predictions of this model are consistent with the data in Huck et al. (2001), and that more than a third of the players have high degree of disadvantageous inequality aversion which is statistically different from zero. |
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Key words: Stackelberg duopoly experiments; non-Stackelberg outcomes; inequality aversion; maximum likelihood estimates |
| Publication Date: January 2006 |
| JEL Classifcation: |
| Author(s): Chong-En Bai Jiangyong Lu Zhigang Tao |
Abstract: The reform of China’s state-owned enterprises (SOEs) has been characterized by a gradual and selective approach. In fact there was no privatization at all until mid 1990s, some fifteen years after China started its economic reform. Despite of years of economic reform, state ownership remains significant in the economy. Most of the SOEs are money losing, and the few exceptional ones tend to be sheltered by government protection in selected industries. Yet China has been enjoying one of the most spectacular growth experiences in the world history, and much of the growth is driven by non-state-owned enterprises (non-SOEs), including foreign invested enterprises operating in China and China’s own private enterprises. Given the poor financial performance of SOEs, the co-existence of state ownership and private ownership in China is a puzzling phenomenon. Does state ownership exist solely for the benefit of politicians, as is modeled by Andrei Shleifer and Robert W. Vishny (1994), or has state ownership played any role in China’s spectacular growth? Is there any rationale behind China’s gradual and selective approach towards privatizing its SOEs? What types of SOEs does the Chinese government choose to privatize? What are the consequences of privatization? In this paper, we offer a theory of SOE reform in the context of China, which has predictions on the types of SOEs to be chosen for privatization and the results of privatization. We then present empirical evidence supporting the basic premise of the theory and its theoretical predictions. |
More: Published in American Economic Review 96:2 (2006), pp. 353-357. |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: February 2006 |
| JEL Classifcation: D81; F23; F31 |
| Author(s): Kit Pong Wong |
Abstract: This paper examines the behavior of the competitive firm that exports to two foreign countries under multiple sources of exchange rate uncertainty. There is a forward market between the home currency and one foreign country’s currency, but there are no hedging instruments directly related to the other foreign country’s currency. We show that the separation theorem holds when the firm optimally exports to the foreign country with the currency forward market. The full-hedging theorem holds when the firm either exports exclusively to the foreign country with the currency forward market or when the relevant spot exchange rates are independent. In the case that the relevant spot exchange rates are positively (negatively) correlated in the sense of regression dependence, the firm optimally opts for a short (long) forward position for cross-hedging purposes. |
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Key words: Exports; Cross-hedging; Regression dependence |
| Publication Date: December 2005 |
| JEL Classifcation: D23, F21, F23, L22, L23 |
| Author(s): Julan Du Yi Lu Zhigang Tao |
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Key words: Multinational firms, global sourcing, property-rights theory, vertical integration, outsourcing, bi-sourcing |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: December 2005 |
| JEL Classifcation: D81; F23; F31 |
| Author(s): Kit Pong Wong |
Abstract: This paper examines the behavior of a risk-averse multinational firm (MNF) making investment in a foreign country under exchange rate uncertainty. To hedge the exchange rate risk, the MNF has access to an unbiased currency forward market. Foreign direct investment (FDI) is irreversible and sequential in that the MNF can acquire additional capital after the exchange rate uncertainty is completely resolved. The MNF as such possesses a real (call) option that is rationally exercised whenever the foreign currency has been substantially appreciated relative to the domestic currency. We show that the MNF’s optimal initial level of sequential FDI is always lower than that of lumpy FDI, while the expected optimal aggregate level of sequential FDI can be higher or lower than that of lumpy FDI. We further show that the presence of the currency forward market improves the MNF’s incentives to make FDI, both ex ante and ex post. |
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Key words: Foreign direct investment; Real options; Currency forwards |
| Publication Date: November 2005 |
| JEL Classifcation: D21; D81; G13 |
| Author(s): Kit Pong Wong Jianguo Xu |
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Key words: Futures; Options; Multi-period hedging; Liquidity constraints; Prudence |
| Publication Date: August 2005 |
| JEL Classifcation: F31; D21; D81 |
| Author(s): Axel F.A. Adam-Miller Kit Pong Wong |
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Key words: Restricted export flexibility; Risk management; Production |
| Publication Date: September 2005 |
| Author(s): Wing Suen |
Abstract: |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: September 2005 |
| JEL Classifcation: D44; D81; F31 |
| Author(s): Donald Lien Kit Pong Wong |
Abstract: This paper examines the optimal bidding and hedging decisions of a risk-averse firm that takes part in an international tender. The firm faces multiple sources of uncertainty: exchange rate risk, risk of an unsuccessful tender, and business risk. The firm is allowed to trade unbiased currency futures contracts to imperfectly hedge its contingent foreign exchange risk exposure. We show that the firm shorts less (more) of the unbiased futures contracts when its marginal utility function is convex (concave) as compared with the case that the marginal utility function is linear. We further show that the curvature of the marginal utility function plays a decisive role in determining the impact of currency futures hedging on the firm’s bidding behavior. Sufficient conditions that ensure the firm bids more or less aggressively than in the case without hedging opportunities are derived. |
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Key words: Currency futures; International tenders; Multiple sources of uncertainty |
| Publication Date: June 2005 |
| JEL Classifcation: D21; D81; F31 |
| Author(s): Kit Pong Wong |
Abstract: This paper examines the interaction between operational and financial hedging in the context of an internationally competitive but domestically monopolistic firm under exchange rate uncertainty. Operational hedging is modeled by letting the firm make its export decision after it has observed the true realization of the then prevailing spot exchange rate. Financial hedging, on the other hand, is modeled by allowing the firm to trade fairly priced exotic derivatives that are tailor-made for the firm’s hedging need. We show that both operational and financial hedging unambiguously entice the firm into producing more. We further derive sufficient conditions under which operational hedging dominates (is dominated by) financial hedging in terms of promoting the firm’s optimal output. |
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Key words: Export flexibility; Exotic derivatives; Production |
| Publication Date: September 2005 |
| JEL Classifcation: H54, O18, R41 |
| Author(s): Zhigang Li |
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Key words: Infrastructure Investment, Interregional Trade, Chinese Economy |
| Publication Date: September 2005 |
| JEL Classifcation: D23, H7, L2 |
| Author(s): Chong-En Bai Jiangyong Lu Zhigang Tao |
Abstract: |
Key words: multi-task efficiency theory of public ownership, political patronage theory of public ownership, divergent interests of local and central governments, privatization |
| Publication Date: August 2005 |
| JEL Classifcation: D23, O16, and P23 |
| Author(s): Chong-En Bai Jiangyong Lu Zhigang Tao |
Abstract: Poor protection of private properties – manifested in the risks of expropriation and discrimination – has limited the access to bank loans by private enterprises in developing and transition economies. Under those circumstances, private entrepreneurs have resorted to ingenious ways of enhancing the de facto protection of private properties through political participation and philanthropic activities. Using a data set of 3,073 private enterprises in China, this paper empirically investigates the effects of formal and de facto property rights protection on the access to bank loans. |
More: Published in Economics of Transition 14:4 (2006), pp. 611-628. |
Key words: access to bank loans, private enterprises, property rights protection |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: June 2005 |
| JEL Classifcation: G12, G14, G24, G34 |
| Author(s): Qiao Liu |
Abstract: This paper examines the stock market reactions to the US biotech firms’ innovation news announcements during 1983-1993. Besides the positive abnormal returns observed during the announcement period, the paper identifies a medium-horizon negative drift in the stock price subsequent to firms’ innovative events. The observed negative drift is robust to the benchmarks and procedures used in calculating the abnormal returns. Cross-sectional analysis demonstrates that the post-announcement abnormal returns are positively related to a firm’s technology depth (measured by R&D intensity) and book-to-market ratio, negatively related to the size. The evidence favors the investor expectational errors hypothesis, and suggests that R&D or other intangibles are market value relevant in the high-tech firms. |
More: Published in Journal of Accounting, Auditing, & Finance 21:3 (Summer 2006), pp. 293-321. |
Key words: innovative events, abnormal returns, technology depth, book-to-market ratio, value relevance of intangibles |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: May 2005 |
| JEL Classifcation: D80, G14, G32, J33 |
| Author(s): Qiang Kang Qiao Liu |
Abstract: |
Key words: Risk-incentive tradeoff, information-based trading, pay-performance sensitivity, PIN measure |
| Publication Date: April 2005 |
| JEL Classifcation: D80, G14, G34, J33 |
| Author(s): Qiang Kang Qiao Liu |
Abstract: We find that an informationally efficient stock market induces firms to rely more heavily on pay-for-performance schemes. We construct five stock market informativeness measures using stock trading data and analysts’ earnings forecast data. These variables, individually and collectively, account for the cross-sectional variation in chief executive officer (CEO) payperformance sensitivity well. Our results are robust to the choice of estimators, samples, time periods, incentive measures, model specifications, and estimation methods. We also analyze the properties of the pay-performance sensitivities of nonCEO executives and executive teams; These have similar properties as CEO pay-performance sensitivity. |
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Key words: Market microstructure, pay-performance sensitivity, probability of informed trading, analysts’ earnings forecast |
| Publication Date: June 2005 |
| JEL Classifcation: |
| Author(s): W.K. Li Philip Yu K.S. Maurice Tse |
Abstract: In this paper, we explore the possibility of developing “vulnerability” indicator for gauging the health of the economy of Hong Kong. An important measure of “health” to be considered is the popular maximum Lyapunov exponent in the dynamical system literature which measures the sensitivity to initial conditions of a deterministic function. Other key economic and financial indicators that have impact on the Hong Kong financial market such as yield spreads & forward rates are also considered. Lyapunov exponent is often used to indicate the presence of nonlinearity and has not been used as an explanatory variable in the literature, when in fact the Lyapunov exponent also contains useful information about a dynamical system and such information can be usefully exploited. Using stepwise probit regression an indicator of the vulnerability of the financial sector is obtained which is able to indicate empirically observed crisis. An interesting feature of this indicator function is that the local maximum Lyapunov exponent plays a non-negligible role in predicting the status of the economy. |
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| Publication Date: June 2005 |
| Author(s): Geng Xiao |
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| Publication Date: May 2005 |
| JEL Classifcation: Q15, Q23, O13, N55 |
| Author(s): Sylvie Démurger Weiyong Yang |
Abstract: This paper uses provincial macro-data from the mid-1980s onwards to investigate the determinants of land-use choice in rural China, by paying a particular attention to the decision to plant trees as competing with agriculture. The evidence supports the importance of economic motivations in the afforestation decision. A profit-seeking behavior is found to be at stake in the decision to plant trees, which is made according to both the relative profitability of forestry against agriculture, and their relative risks. Afforestation is also found to strongly depend on the pressure upon land as well as on household wealth. |
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Key words: Forest economics, Land use, Economic development, China |
| Publication Date: April 2005 |
| JEL Classifcation: C70, C72 |
| Author(s): Sau-Him Paul Lau Vai-Lam Mui |
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Key words: Battle of the Sexes game, turn taking, conflict mitigating, coodination enhancing |
| Publication Date: May 2005 |
| JEL Classifcation: J12, J13, J16, J22 |
| Author(s): James P. Vere |
Abstract: This paper uses U.S. Census data from 1980, 1990 and 2000 to estimate synthetic-cohort life cycle effects of fertility on women’s and couples’ labor supply. Multiple births are used as an instrument to control for unobserved heterogeneity. For single women, the causal effect of fertility has declined significantly over time. Couples, however, have become more specialized along traditional lines, with married men tending to increase labor earnings rather than reduce hours worked. |
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| Publication Date: May 2005 |
| JEL Classifcation: L10, D21, H26, G30 |
| Author(s): Hongbin Cai Qiao Liu Geng Xiao |
Abstract: This paper investigates whether market competition enhances firms’ incentives to hide profits. We develop a theoretical model of firms’ profit hiding behavior in competitive environments and derive several testable hypotheses. We then test the model using a database that covers more than 20,000 large-and-medium-sized industrial firms in China during the period 1995-2002. Our findings show that firms in more competitive market environments — as well as firms in relatively disadvantageous positions — hide a larger share of their profits. This suggests that policies intended to promote competition should be accompanied by policies aiming at strengthening institutional infrastructure and at leveling playing fields. |
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Key words: Competition, firm behavior, tax evasion, Chinese economy |
| Publication Date: May 2005 |
| JEL Classifcation: G3 |
| Author(s): Qiao Liu |
Abstract: In this paper, we provide a preliminary survey of the burgeoning literature on corporate governance in China. We structure the existing research around three themes: (1) What are the current corporate governance practices in China? (2) How do these corporate governance practices affect Chinese firms’ valuation and various corporate policies? (3) How does China’s unique institutional setting pre-determine the governance model adopted in China? The evidence indicates that the current governance practices adopted in China can be best described as a control-based model, which contrasts strikingly with the market-oriented model commonly used in the US and UK, and championed by most corporate governance advocates. The evidence also shows that Chinese firms, whose corporate governance practices deviate from the control based model, demonstrate stronger performance, and tend to make decisions in line with the shareholders’ interest. The evidence from the literature also suggests that the control-based model root in the “administrative governance” approach adopted by the Chinese regulatory authorities, and is tailed to China’s specific institutional setting. |
More: Published in CESifo Economic Studies 52:2 (2006), pp. 415-453. |
Key words: Corporate governance, control-based model, the Chinese economy |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: April 2005 |
| JEL Classifcation: G1, M4 |
| Author(s): Qiao Liu Rong Qi |
Abstract: We find that accruals mispricing is more pronounced for stocks with higher level of probability of informed trading (PIN). We interpret it as the evidence of informed traders using their proprietary information on accruals quality to trade against average investors. The informed traders’ arbitrage generates an annualized size and book-to-market adjusted abnormal return of 19.81% over the 1993-2002 period. Using three different methods to estimate the transaction costs and the impact of various market frictions on the accruals strategy, we find that informed traders make an abnormal return of 6.5%–17.53% after trading costs. Our findings are robust to testing methods, asset pricing models used, and various ways of controlling for trading costs. They suggest that the persistence of accruals anomaly might be driven by the non-diversifiable information risk rather than higher trading costs of extreme accruals stocks. We also design a strategy for uninformed traders to mimick informed traders’ behavior, and find that it generates profits equivalent to those obtained by the informed traders. |
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Key words: accruals anomaly, information cost, trading cost, limited arbitrage, trading strategy |
| Publication Date: April 2005 |
| JEL Classifcation: |
| Author(s): Sonia M.L. Wong |
Abstract: This paper explains how China was able to develop a large, active, and technologically advanced stock market in the 1990s while still maintaining its salient socialistic institutions of state ownership and monopolistic control over financial intermediation and offering shareholders only weak legal protection. We argue that the marriage of socialism and capitalism that took place during the establishment of China’s poorly regulated stock market has produced an arena for rent-seeking local governments and state-owned enterprises and a casino for speculators. We show how China’s stock market development in the 1990s was driven primarily by rent-seeking and speculative activities rather than by value-driven transactions between investors and fund seekers. |
More: Published in Cato Journal 26:3 (2006), pp. 389-424. |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: April 2005 |
| JEL Classifcation: D81; F23; F31 |
| Author(s): Donald Lien Kit Pong Wong |
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Key words: Futures; Marking to market; Multinationals; Liquidity constraints |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: April 2005 |
| JEL Classifcation: D81; F23; G32 |
| Author(s): Udo Broll Kit Pong Wong |
Abstract: |
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Key words: Multinationals; Hedging; Capital structure; Exchange rate uncertainty |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: April 2005 |
| JEL Classifcation: C8; D3; R1 |
| Author(s): Sylvie Démurger Martin Fournier Li Shi |
Abstract: Using newly available spatial price deflators, this paper shows that inequality evaluations in the literature overstate the magnitude of inequality and inequality changes in China, as well as the role played by regional differences in the observed inequality rise during the 1990s. |
More: Published in Economics Letters 93 (December 2006) pp. 354-359. |
Key words: Ineqaulity; China; Spatial price-deflators; Inequality decomposition |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: March 2005 |
| JEL Classifcation: |
| Author(s): Yigang Pan Zhigang Tao Jiangyong Lu |
Abstract: Most companies do not compare acquisition and alliance before picking one, and often end up with the “wrong” thing (Dyer, Kale, and Singh, 2004). Even though academic literature does compare acquisitions and alliances, there exist inconsistent explanations and findings. In this study, we reexamine the choice of multinational firms in partial-ownership acquisitions and start-ups (joint ventures) when they expand into an emerging economy, China. Drawing upon the existing literature, we examine the influence of product relatedness, competitive rivalry, task-specific knowledge, and location-specific knowledge. Our sample consists of 2,152 partial acquisitions and start-ups in China in 257 product sectors from 23 countries between 1985 and 2001. Our findings offer new insights on partial ownership international expansion strategies. |
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Key words: Acquisitions, Start-ups, Ownership, Diversification, FDI |
| Publication Date: March 2005 |
| JEL Classifcation: D72, L82 |
| Author(s): Jimmy Chan Wing Suen |
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Key words: media bias, commercial media, voter welfare |
| Publication Date: January 2005 |
| JEL Classifcation: E32, R11 |
| Author(s): Petra Gerlach-Kristen |
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Key words: China, Hong Kong, business cycles, inflation cycles, synchronisation |
| Publication Date: July 2004 |
| JEL Classifcation: |
| Author(s): Xiao Geng |
Abstract: There is no doubt that part of People’s Republic of China (PRC)’s FDI inflows belongs to the return of the Chinese capital that has gone aboard escaping the foreign exchange control. This paper shows a large part of the capital originally created in PRC has managed to go abroad and has stayed aboard waiting for opportunities to return back to PRC. On average the round tripping FDI, e.g. the returning Chinese capital, is about 20% to 30% of the capital flight of various estimations. The pattern of capital creation and movement uncovered here suggests that competition for FDI flows are not a zero-sum game. The FDI inflows are not simply a fix sum to be competed away among different countries. Instead, PRC’s experiences have shown that FDI inflows are probably endogenously determined by the capacity of the hosting countries to create new capital. When a developing economy like PRC is creating new capital, a significant part of the new capital is likely to find its way abroad through mis-invoicing in international trade, smuggling, and other channels of capital flight since the people who are creating the new capital have strong incentives to diversity domestic risks and to seek better protection of property rights. The accumulated capital flight then forms the base for sustained round tripping FDI back home when the opportunities to make profits and create new capital at home continue to exist. |
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| Publication Date: November 2004 |
| JEL Classifcation: |
| Author(s): Busakorn Chantasasawat K.C. Fung Hitomi Iizaka and Alan Siu |
Abstract: People’s Republic of China (PRC) in recent years has emerged as the largest recipient of foreign direct investment (FDI) in the world. Many analysts and government officials in the developing world have increasingly expressed concerns that they are losing competitiveness to PRC. Is PRC diverting FDI from other developing countries? Theoretically, a growing PRC can add to other countries’ direct investment by creating more opportunities for production networking and raising the need for raw materials and resources. At the same time, the extremely low Chinese labor costs may lure multinationals away from sites in other developing countries when the foreign corporations consider alternative locations for low-cost export platforms.
In this paper, we explore this important research and policy issue empirically. We focus our studies on East and Southeast Asia as well as Latin America. For Asia, we use data for eight Asian economies (Hong Kong, China, Taipei,China, Republic of Korea, Singapore, Malaysia, Philippines, Indonesia and Thailand) for 1985-2002 while for Latin America, we use data for sixteen Latin American economies (Argentina, Bolivia, Brazil, Chile, Columbia, Costa Rica, Ecuador, El Salvador, Guatemala, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela) for 1990-2002. We control for the standard determinants of their inward direct investment. We then add PRC’s inward foreign direct investment as an indicator of the “PRC Effect”. Estimation of the coefficient associated with the PRC Effect proxy gives us indications about the existence of the PRC Effect.
We have three results: (1) The level of PRC’s foreign direct investment is positively related to the levels of inward direct investments of economies in East and Southeast Asia, while the PRC Effect is mostly insignificant for Latin American nations; (2) the level of PRC’s foreign direct investment is negatively related to the direct investment of these economies as shares of total foreign direct investments in the developing countries; (3) The PRC Effect is generally not the most important determinant of the inward direct investments of these economies. Market sizes and policy variables such as openness and corporate tax rates tend to be more important. |
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| Publication Date: November 2004 |
| JEL Classifcation: |
| Author(s): Busakorn Chantasasawat K.C. Fung Hitomi Iizaka and Alan Siu |
Abstract: By any measure, China’s policy to attract foreign direct investment (FDI) as a pillar of its development strategy has been a huge success. This FDI policy is promoting growth in China. But is this development strategy beggar-thy-neighbor? In other words, is China taking direct investment away from other Asian developing economies? Theoretically, a growing China can add to other countries’ direct investment by creating more opportunities for production-networking and raising the need for raw materials and resources. At the same time, the extremely low Chinese labor costs may lure multinationals away from other Asian sites when the foreign corporations consider alternative locations for low-cost export platforms.
In this paper, we explore this developmental issue empirically. We use data for eight Asian economies (Hong Kong, Taiwan, Republic of Korea, Singapore, Malaysia, Philippines, Indonesia and Thailand) from 1985 to 2001 and control for the determinants of their inward direct investment. We then add China’s inward foreign direct investment as an indicator of the “China Effect”. Due to issues of simultaneity, we use a random effects simultaneous equation model to estimate our coefficients.
We have three results: (1) The level of China’s foreign direct investment is positively related to the levels of these economies’ inward direct investments; (2) the level of China’s foreign direct investment is negatively related to the direct investment of these economies as shares of total Asian foreign direct investments; (3) The China Effect is generally not the most important determinant of the inward direct investments of these economies. Policy and institutional factors such as openness, corporate tax rates and the level of corruption tend to be more important. |
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| Publication Date: October 2004 |
| JEL Classifcation: |
| Author(s): C.Y. Yiu S.K. Wong, M.K.S. Tse, and K.W. Chau |
Abstract: We examine forward sale (pre-sale) activities on the volatility of spot prices in the real estate market. The abundance of pre-sales data and major changes in regulatory control on the pre-sale market during the 90’s in Hong Kong allow us to undertake empirical tests using Hong Kong’s real estate data. Our results show that the volatility of spot prices increased significantly after forward sales were severely dampened by regulatory control measures introduced in 1994, but decreased again when the measures were partly relaxed in 1998. The results contribute to the long lasting debate on whether the introduction of a futures market reduces the volatility of spot prices. Previous studies were mainly conducted in markets with low transaction costs, notably financial markets. By utilizing the unique regulatory changes in the pre-sale market of Hong Kong, we are able to conduct an experiment on the conditional volatility of spot prices in a high information-cost environment. This sheds light on the mixed evidence found in the finance literature. |
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Key words: Forward contract, GARCH model, pre-sale, price volatility |
| Publication Date: December 2004 |
| JEL Classifcation: O40, E22 |
| Author(s): Sau-Him Paul Lau |
Abstract: A major empirical interest in growth studies is whether permanent changes in economic fundamentals affect the long-run growth rate or not. However, a direct time series analysis of this hypothesis may not always be feasible because the permanence of many such changes is rather questionable. This paper explains why examining the long-run effects of temporary changes in investment share on per capita output provides indirectly the answer regarding the effects of (possibly hypothetical) permanent changes in investment share, when per capita output and per capita investment are cointegrated. Applying the proposed method to the post-war data of major industrial countries, it is found that a disturbance to investment share does not produce a positive long-run effect in each of the four countries—France, Italy, Japan and the UK—in which per capita output and per capita investment are cointegrated. The evidence is unfavorable to the class of endogenous growth models. |
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Key words: error-correction model; endogenous long-run growth |
| Publication Date: May 2004 |
| JEL Classifcation: D21; D81, F31 |
| Author(s): Harald L. Batterman Udo Broll Kit Pong Wong |
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Key words: Exchange rate risks, cross-hedging, exports, production |
| Publication Date: October 2004 |
| JEL Classifcation: J16, J31, J71, O53, P23 |
| Author(s): Sylvie Démurger Martin Fournier Yi Chen |
Abstract: This paper analyzes the impact of market liberalization on gender wage differentials and discrimination against women in urban China at the beginning of the 90s. The observed stability in the overall gender wage gap between 1988 and 1995 is shown to result from a complex set of evolutions across enterprises, earnings distributions and time. Our results highlight the interplay of opposing forces, economic reforms contributing to changes in managers’ behaviors in different dimensions. On the one hand, by bringing more competition, liberalization favored a reduction in discriminating behaviors in both urban collectives and foreign-invested enterprises; on the other hand, by relaxing institutional rules, it led to a loosening of the government’s egalitarian wage setting policies, thus leaving space for discrimination to arise in state-owned enterprises. |
More: Published in The Developing Economies 45 (March 2007) pp. pp. 97-121. |
Key words: gender wage differentials, discrimination, enterprise ownership, urban China |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: December 2004 |
| JEL Classifcation: G3, M4 |
| Author(s): Chuntao Li Frank M. Song Sonia M.L. Wong |
Abstract: Using a panel data of both audit firms and listed firms in China from 2001 to 2003, we examine the continuous relation between audit firm size and audit quality in China’s relatively competitive market for publicly listed firms. We find that larger auditors are more likely to issue modified opinions than smaller auditors. We also find that larger auditors tend to enjoy a significant audit fee premium. These results indicate the existence of not only a positive but also a continuous relation between audit firm size and audit quality in the market. We further examine the relation between the size of auditors and the listed firms’ corporate governance and offer evidence that the size of auditors is related positively to quality of corporate governance. The results suggest that auditing is a complement to various internal corporate control mechanisms in the listed firms. |
More: Revised May 2005 |
Key words: Audit firm Size, Audit Quality, Emerging Market, China’s Audit Market, Corporate Governance |
| Publication Date: November 2004 |
| JEL Classifcation: |
| Author(s): Eric C. Chang Sonia Wong |
Abstract: This study examines the relation between chief executive officer (CEO) turnovers and performance in China’s listed enterprises where controlling shareholders are state-owned entities. We obtain three results. First, we offer evidence that the likelihood of forced CEO turnover is related to the incidence of negative earnings but not to industry-adjusted return on asset. Second, we document some improvement in accounting performance following CEO turnover, but the extent of the improvement is smaller and less significant than what has been documented for U.S. and Japanese enterprises. Third, we show that there is no significant relation between CEO turnovers and stock price performance. |
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Key words: CEO turnovers, enterprise performance, state and private ownership |
| Publication Date: November 2004 |
| JEL Classifcation: |
| Author(s): Wing Thye Woo |
Abstract: The Washington Consensus suffers from fundamental inadequacies, and that a more comprehensive framework of the economic process is needed to guide the formulation of country-specific development strategies. The following five propositions summarise the set of interrelated arguments made in this paper:
1. The Washington Consensus was based on a wrong reading of the East Asian growth experience. This explains why some observers have called the trade regimes of Korea and Taiwan in the 1965-1980 period “free trade regimes” even though they featured extensive import tariffs and export subsidies. 2. There have been two phases to the Washington Consensus doctrine. The mantra of the first phase (Washington Consensus Mark 1) is “get your prices right”, and the falsification of this first mantra led to the emergence of the second phase of the Washington Consensus doctrine. The new mantra from the Washington Consensus Mark 2 is “get the institutions right”. The danger is that an elastic definition of the term “institutions” will render the current mantra intellectually vacuous. 3. While central planning went overboard in suppressing the private market economy, the Washington Consensus runs the danger of denying the state its rightful role in providing an important range of public goods. The Washington Consensus also runs the danger of denying the limitations of self-help in the case of sub-Saharan Africa by overlooking the possibility of poverty traps. 4. The Washington Consensus does not understand that the ultimate engine of growth in a predominantly private market economy is technological innovations, and that the state can play a role in facilitating technological innovations. The Washington Consensus is too hooked upon trade-led growth to acknowledge that science-led growth is becoming even more important. 5. The Washington Consensus does not recognize the constraints that geography and ecology could set on the growth potential of a country. For example, the trade-led growth strategy of East Asia cannot work with the same efficiency for a landlocked country. Foreign direct investment is also less likely to go to places that are malaria-infested. |
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| Publication Date: September 2004 |
| JEL Classifcation: G3, O14, O53 |
| Author(s): Yifan Hu Frank Song Junxi Zhang |
Abstract: There exist three views in the literature on the efficiency of state-owned versus private firms: competition, ownership, and governance. Each view emphasizes on one aspect while ignoring others. In this paper, we use a unique World Bank survey data of 736 Chinese firms across seven sectors and five cities from 1996 to 2001 to assess the relative importance of the above three views, both independently and jointly. It is found that when examined independently each determinant matters in explaining the efficiency of our sample firms; however, when they are jointly examined, ownership type and corporate governance are relatively more important, while the competition effect is less significant generally. We also find there is some degree of substitutability between two pairs: privatization and corporate governance, and privatization and competition. These results suggest that the three views are indeed incomplete, and a complete package requires some combination of these determinants. We also find that non-SOEs seem to have certain advantage in some governance mechanisms than SOEs and that market competition matters greatly for SOEs but not so much for non-SOEs. These results have important policy implications for China’s on-going privatization movement and her strive for better corporate governance and market competition. |
More: Published in 9 (2005) in Chinese, pp. 45-57. |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: August 2004 |
| JEL Classifcation: D21, D81 |
| Author(s): Kit Pong Wong |
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Key words: Marking to market; Futures; Tax asymmetry; Liquidity constraints |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: July 2004 |
| JEL Classifcation: D21, D81, G31 |
| Author(s): Wong Kit Pong |
Abstract: This paper examines the interaction between operational and financial hedging in the context of the competitive firm under output price uncertainty. The firm is endowed with an abandonment option in that its production decision is made after the true realization of the random output price has been observed. If the realized output price is less than its marginal cost, the firm optimally exercises its abandonment option and ceases from production. Otherwise, the firm lets its abandonment option extinguish and produces at its capacity. The existence of the abandonment option is shown to induce the firm to opt for a concave payoff risk-sharing rule that can be perfectly replicated by writing call options with a single strike price set equal to the marginal cost. We derive necessary and sufficient conditions that ensure a positive (negative) effect of operational hedging via the abandonment option on the firm’s optimal operating leverage. In contrast, we show that the effect of financial hedging via customized exotic derivatives on the firm’s optimal operating leverage is unambiguously positive. These results suggest that the interaction between abandonment options and exotic hedging is multi-dimensional and deserves further scrutiny. |
More: Published in Journal of Derivatives Accounting 2:1 (2005), pp. 1-10. |
Key words: Operating leverage, Abandonment options, Exotic hedging |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: June 2004 |
| JEL Classifcation: D21, D81, F31 |
| Author(s): Wong Kit Pong Yick Ho Yin |
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Key words: currency options, export flexibility, production |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: July 2004 |
| JEL Classifcation: D710, D810, D830, D850 |
| Author(s): Wing Suen |
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Key words: social networks, overconfidence, self-selection, learning |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: March 2004 |
| JEL Classifcation: |
| Author(s): Sonja Opper Victor Nee Sonia Wong |
Abstract: In this paper we have addressed the nature of China’s politicized capitalism emerging from market transition. We have specifically sought to investigate whether the pattern of interventions by the communist party and government bureaus in the corporate governance of for-profit firms represents a stable equilibrium in the institutional evolution of China’s mixed economy. We have yielded two major findings. First, we confirm the developmental state view that the quality of state actor interference is actually contingent on state structures, incentives and constraints. In this sense, we provided evidence that overall party intervention is inferior to government intervention and that the quality of state actor involvement in economic transactions at the firm level is determined by the functional aptitude of state actors. Second, our estimates do not support the widespread belief in the existence of a “helping hand” of state intervention at the firm level in China. In contrast to the common view that close state-firm relations have actually contributed to China’s remarkable growth trajectory (Walder 1995, Frye and Shleifer 1997), our results suggest that politicized capitalism is not associated with significant beneficial input in China’s listed firms and is therefore unlikely to represent a stable institutional equilibrium. |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: January 2004 |
| Author(s): Der-Chen Chang, Haitao Fan, Duy-Minh Nhieu Eric Chang |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: February 2004 |
| Author(s): Eric Chang Sen Dong |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: January 2004 |
| JEL Classifcation: |
| Author(s): Eric Chang Joseph Cheng Ajay Khorana |
Abstract: In this paper, we examine the dynamics of the price change-trading volume relation at the aggregate market/index level. We introduce the use of a novel “volume dispersion” measure designed to proxy for the variability in firm-specific information flows across securities that comprise the market. Our results suggest that the price change-volume relation can be strengthened by the introduction of this measure. We also offer evidence of a positive relation between market volatility and trading volume and a negative relation between market volatility and volume dispersion. Furthermore, we demonstrate that lagged values of market level trading volume and volume dispersion can predict the next day’s index level volatility. Our findings remain robust when the implied volatility of the S&P 100 index options is used in the analysis. This suggests that index option traders need to pay close attention to both aggregate market level trading volume and volume dispersion to better capture the dynamics of daily market volatility. |
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| Publication Date: March 2004 |
| Author(s): Eric Chang Yinghui Yu |
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More: Won the Best Paper Award at the 2004 National Taiwan University International Conference. |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: February 2004 |
| JEL Classifcation: G32, G34, M41, M43 |
| Author(s): Qiao Liu Zhou Lu |
Abstract: This paper conducts a two-stage analysis to demonstrate that earnings management in China’s listed companies is mainly induced by controlling owners’ tunneling activity. In the first stage, we relate our analyses to prior research on Chinese listed companies which has documented their strong incentives to manage earnings in order to meet certain return on equity (ROE) thresholds. We identify tunneling evidence in two scenarios where such practice has been most conspicuous. In the second stage, we examine systematic differences in earnings management across the universe of China’s listed companies during 1999-2001. We provide cross-sectional and timeseries evidence showing that firms with higher corporate governance levels tend to have less earnings management. Our empirical findings although not being able to completely exclude other theories, strongly suggest that agency conflicts between controlling shareholders and outside investors are the main stimuli of earnings management in China’s listed companies. |
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Key words: earnings management, tunneling, corporate governance, and Chinese listed companies |
| Publication Date: April 2004 |
| JEL Classifcation: G34, G32 |
| Author(s): Chong-En Bai, Qiao Liu, Joe Lu, Frank Song, and Junzi Zhang |
Abstract: This paper studies the relationship between the governance mechanisms and the market valuation of publicly listed firms in China empirically. We construct measures for corporate governance mechanisms and measures of market valuation for all publicly listed firms on the two stock markets in China by using data from the firm’s annual reports. We then investigate how the market-valuation variables are affected by the corporate governance variables while controlling for a number of factors commonly considered in market valuation analysis. A corporate governance index is also constructed to summarize the information contained in the corporate governance variables. The index is found to have statistically and economically significant effect on market valuation. The analysis indicates that investors pay a significant premium for well-governed firms in China, benefiting firms that improve their governance mechanisms. |
More: Published in Journal of Comparative Economics 32:4 (2004), pp. 599-616. |
Key words: Corporate governance mechanisms, market valuation, corporate governance index, corporate governance premium |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: May 2004 |
| JEL Classifcation: G30, G32, H26, M41 |
| Author(s): Qiao Liu Geng Xiao |
Abstract: This paper develops a fairly general empirical procedure to trace out the extent of profit disguising and examine the motives behind it. Applying the methodology to the National Bureau of Statistics of China (NBS) database which covers more than 20,000 large-and mediumsized industrial firms in China for 1995-2002, we find (i) there is a profit-disguising propensity order by ownership in China (from the weakest to the strongest) — foreign invested firms < Hong Kong or Taiwan firms < state-owned enterprises < mixed firms < collective firms < private firms. Specifically, we find that, based on a conservative estimation, the private firms in China on average disguise 18.5% more profits than the state-owned enterprises and 37.4% more profits than foreign firms; (ii) firms with tighter financing constraints reveal stronger tendency to disguise profit; and (iii) smaller firms tend to disguise more profits. These results suggest that tax evasion, and incentive to overcome financing constraints, together with distorted corporate behavior caused by insecure property rights and weak institutions, account for Chinese firms’ profit disguising. We also find that Chinese firms’ profit disguising lies principally on revenue rather than cost. |
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Key words: Profit disguising, tax evasion, ownership, and financing constraints |
| Publication Date: April 2004 |
| JEL Classifcation: G34, G32 |
| Author(s): Chong-En Bai Qiao Liu Frank Song |
Abstract: When there is competition for the control over a listed firm, the contestants have to bid for it by committing their own resources to prop up the firm, which benefits ordinary outside shareholders. The existing literature has not provided clear evidence of propping and the conditions under which propping prevails. The evidence for the benefits of having a market for corporate control is also lacking. This paper fills the aforementioned void by presenting a case study of China’s emerging corporate control market. We examine why a typical piece of bad news – a listed firm gets into financial trouble and is designated a special treatment (ST) firm by the regulatory authorities – could have generated overwhelmingly favorable market reactions. Our analysis shows that the firms’ 31.8 percentage points of abnormal stock market performance over the two years after being designated ST reflects the price paid by their controlling shareholder (incumbent or entrant) in resources commitment in order to gain control over and save the firms. We find that the controlling shareholders’ propping is more conspicuous in firms where the competition for the control rights is tougher and the size of control benefits is larger. We also suggest an innovative way to estimate the private benefits of control and find that they are on average 33.5% of firm value in China. |
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Key words: Propping and tunnelling, private benefits, contest over corporate control, ‘ST’ puzzle in China |
| Publication Date: January 2004 |
| JEL Classifcation: E13 |
| Author(s): Sau-Him Paul Lau Philip Hoi-Tak Ng |
Abstract: |
Key words: Real-business-cycle models; Loglinear approximate solution |
| Publication Date: May 2004 |
| JEL Classifcation: J13, J18, Z12 |
| Author(s): Ka-fu Wong Linda Yung |
Abstract: Traditionally, belief in the Chinese Zodiac promotes the superstition that the timing of one’s birth determines one’s fate. Adherence to this belief has resulted in increased birth rates during Dragon years and, hence, problems in the logistics of providing certain public goods and services (such as schools and medical services) by governments. Despite the possible economic impacts of this superstition on society, no previous study has attempted to test its validity. Using the 1991 and 1996 Hong Kong census data sets, as well as the standard “Return-to-Education” methodology, we do not find any evidence for this pervasive superstition. |
More: Published in Economic Inquiry 43:3 (2005), pp. 689-697. |
Key words: Superstition, earnings function, birth timing, Dragon |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: May 2004 |
| JEL Classifcation: |
| Author(s): Paul Lejot Douglas Arner Liu Qiao |
Abstract: Liquid markets for debt securities exist comprehensively in no East Asian economy other than Japan, even though short or medium-term bonds are issued in most and Asian borrowers are established (though generally not prolific) international issuers. Today’s markets provide a borrowing medium (not always effectively) for Asian governments, financial institutions and some companies, but investor activity is closely correlated with bank credit creation. Above all, the region’s markets provide no real guard against crisis or contagion, nor act as a balance to banking systems susceptible to distortion and event risk. Asia’s economies may not suffer general capital shortages but poor resource allocation is pervasive and would be greatly improved by efficient national and regional financial markets. This paper is concerned with markets for tradable debt securities, with the impediments to their proper functioning and with the value of structured finance techniques to expand general usage in Asia’s debt markets. Seven years after its most profound financial crisis, Asia risks new contagion from any similar, unforeseen loss of confidence. Active debt capital markets would help limit such risks. The world’s foremost bond markets developed as a result of intense national needs, and while economic growth will inevitably lead to greater bond issuance and trading this will be insufficient for the region’s wider requirements without official sponsorship of active cooperative market reform. The paper concludes with three linked policy proposals: a matrix of steps to remove legal, fiscal, regulatory or systemic obstacles or omissions that severely hinder market usage; measures to encourage the development of a unified regional offshore market for local and major currency risk; and the concept of a regional body to promote the creation of assetbacked securities on a scale not previously contemplated. |
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| Publication Date: January 2004 |
| JEL Classifcation: D21, D81 |
| Author(s): Kit Pong Wong |
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Key words: Marking to market, Liquidity constraints, Futures, Production |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: May 2004 |
| JEL Classifcation: E43, E58 |
| Author(s): Petra Gerlach-Kristen |
Abstract: Central banks have been criticised for changing interest rates “too little, too late”. While this pattern arises in a simple model in which policymakers are exposed to uncertainty about the optimal level of interest rates and set the policy rate in steps, we show that the problem is exacerbated if a policy committee takes decisions by consensus rather than by a vote. Policy rate changes are moreover rarer under a consensus procedure and, when there is an adjustment, the policy rate is more frequently adjusted by several steps at a time. |
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Key words: monetary policy committees, decision procedures, Bank of England, European Central Bank |
| Publication Date: May 2004 |
| JEL Classifcation: E37, E47 |
| Author(s): Petra Gerlach-Kristen |
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Key words: Hong Kong, simulation, structural VAR, currency board, Taylor rule, exchange rate rule |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: May 2004 |
| Author(s): Petra Gerlach-Kristen |
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| Publication Date: April 2004 |
| Author(s): Y.C. Richard Wong Alan Siu |
Abstract: |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: March 2004 |
| JEL Classifcation: D720, D820 |
| Author(s): Jimmy Chan Wing Suen |
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Key words: media bias, cheap talk, policy convergence |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: January 2004 |
| JEL Classifcation: |
| Author(s): K.C. Fung Hitomi Iizaka and Paul Lau Chelsea Lin |
Abstract: In this paper, we use a version of the Dixit-Grossman-Helpman (1997) common agency model and apply the lobbying framework to exchange rate policies. In particular, we formalize Ron McKinnon’s idea that the appreciation of the Japanese yen in the past was due to trade pressure applied by the U.S. government. We extend the theory to examine the case where the Japanese firms are modeled as a coalition of shareholders and incumbent employees (Aoki 1988). We conclude by pointing out that this approach is applicable and relevant to the current disputes on the level of the Yuan exchange rate between the U.S. policymakers and the Chinese government. |
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| Publication Date: January 2004 |
| JEL Classifcation: J13, J22 |
| Author(s): James P. Vere |
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| Publication Date: December 2003 |
| JEL Classifcation: |
| Author(s): Busakorn Chantasasawat K.C. Fung Hitomi Iizaka and Alan Siu |
Abstract: There is a large literature on the determinants of foreign direct investment. In recent years, China emerges as the largest recipient of foreign direct investment. Is China taking direct investment away from other Asian economies? Theoretically, a growing China can add to other countries’ direct investment by creating more opportunities for production networking and by raising demand for raw materials and resources. At the same time, relatively low Chinese labor costs may lure multinationals away from other Asian sites when multinationals consider alternative locations for low-cost export platforms. In this paper, we explore this important issue empirically. We use data from eight Asian economies (Hong Kong, Taiwan, Republic of Korea, Singapore, Malaysia, Philippines, Indonesia, and Thailand) from 1985 to 2001 and control for the determinants of their inward foreign direct investment (FDI). We then add China’s FDI inflows as an indicator of the “China Effect”. Due to possible simultaneity between China’s and the Asian countries’ inward FDI, we use fixed effects as well as random effects simultaneous equation models to estimate the “China Effect”. We have four results: (1) The level of China’s FDI is positively related to the levels of other Asian economies’ inward direct investments; (2) the level of China’s FDI is negatively related to these economies’ shares of total Asian inward FDI as well as shares of total FDI inflows to the developing countries; (3) the China Effect on the Asian countries’ shares of the world inward FDI is mixed, minimal and not significant; and (4) the “China Effect” is not the most important determinant of inward direct investments to these economies. In particular, corporate tax rates, the level of corruption, and openness to trade have more influential effects on FDI inflows. |
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| Publication Date: August 2003 |
| Author(s): Eric Chang Leong Kwai Li Wai-Man Tse |
Abstract: |
| Publication Date: October 2003 |
| JEL Classifcation: |
| Author(s): Busakorn Chantasasawat K.C. Fung and Hitomi Iizaka Alan Siu |
Abstract: Is China taking direct investments away from other Asian economies? Theoretically, a growing China can add to other countries’ direct investments by creating more opportunities for production-networking and raising the need for raw materials and resources. At the same time, the extremely low Chinese labor costs may lure multinationals away from other Asian sites when the foreign corporations consider alternative locations for low-cost export platforms. In this paper, we explore this important issue empirically. We use data for eight Asian economies (Hong Kong, Taiwan, Republic of Korea, Singapore, Malaysia, Philippines, Indonesia and Thailand) from 1985 to 2001 and control for the determinants of their inward direct investment. We then add China’s inward foreign direct investment as an indicator of the “China Effect”. Due to issues of simultaneity, we use a random effects simultaneous equation model to estimate our coefficients. We have three results: (1) The level of China’s foreign direct investment is positively related to the levels of these economies’ inward direct investments; (2) the level of China’s foreign direct investment is negatively related to the direct investments of these economies as shares of total Asian foreign direct investments; (3) The China effect is not the most important determinant of the inward direct investments of these economies. Policy and institutional factors such as openness, corporate tax rates and corruption can be more important. |
More: Published in Asian Economic Papers 3:3 (2005), pp. 122-140. |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: November 2003 |
| JEL Classifcation: C70, C72 |
| Author(s): Sau-Him Paul Lau Vai-Lam Mui |
Abstract: Turn taking is observed in many field and laboratory settings. We study when and how turn taking can be supported as an equilibrium outcome in a class of repeated games, where the stage game is a symmetric two-player mixed-interest game with asymmetric joint-payoff-maximizing outcomes that may or may not be Nash equilibria. We consider the “turn taking with independent randomizations” (TTIR) strategy that achieves the following three objectives: (a) helping the players get onto a joint-payoff-maximizing turn-taking path, (b) resolving the question of who gets to start with the good turn first, and (c) deterring defection. The TTIR strategy is simpler than those time-varying strategies considered in the Folk Theorem for repeated games. We determine conditions under which a symmetric TTIR subgame-perfect equilibrium exists and is unique. We also derive comparative static results, and study the welfare properties of the TTIR equilibrium. |
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Key words: Conflict, Coordination, Randomization, Turn Taking, Repeated Games |
| Publication Date: October 2003 |
| JEL Classifcation: D21, D81, G31 |
| Author(s): Kit Pong Wong |
Abstract: This paper examines the behavior of the competitive firm under output price uncertainty when the firm is endowed with an abandonment option and has access to a forward market for its output. When the realized output price is less than its marginal cost, the firm optimally exercises its abandonment option and ceases from production. The firm lets its abandonment option extinguish, thereby producing up to its capacity, only when the realized output price exceeds its marginal cost. The ex post exercising of the abandonment option as such convexifies the firm’s ex ante profit with respect to the random output price. We show that neither the separation theorem nor the full-hedging theorem holds in the presence of the abandonment option. The firm under-hedges its output price risk exposure in the forward market wherein the forward price contains a non-positive risk premium. When the set of hedging instruments is expanded to include options, we show that both the separation and full-hedging theorems are restored. We further show that the firm prefers options to forwards for hedging purposes when both types of contracts are fairly priced. |
More: Published in International Review of Economics and Finance 15:1 (2006), pp. 72-86. |
Key words: Abandonment options, Operating leverage, Forwards, Options |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: August 2003 |
| JEL Classifcation: F1, C7 |
| Author(s): Eric W. Bond Stephen Ching Edwin L.C. Lai |
Abstract: |
Key words: WTO, accession, most favored nation (MFN) |
| Publication Date: September 2003 |
| JEL Classifcation: |
| Author(s): Wing Thye Woo |
Abstract: Frequent bank recapitalization is the biggest threat to China’s fiscal solvency and macroeconomic stability. Our calculations conclude that the forthcoming second recapitalization since 1997 is the last one that China can afford. Even then, fiscal solvency and macroeconomic management requires that the state continues keeping interest rates artificially low in order to avoid reducing the present fiscal stimulus to accommodate the servicing of the bonds issued for the bank bailout. In short, China faces a difficult tradeoff between the maintenance of fiscal stimulus to keep growth on track and the promotion of financial market development via recapitalizing the state banks, splitting them up and privatising some of them, liberalising the establishment of private financial institutions, improving prudential monitoring and enforcement, and deregulating interest rates. |
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| Publication Date: November 2003 |
| Author(s): Ettore Damiano Li Hao Wing Suen |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: November 2003 |
| Author(s): Douglas W. Allen Krishna Pendakur Wing Suen |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: October 2003 |
| JEL Classifcation: J31, J42, P23, O53 |
| Author(s): Yi Chen Sylvie Demurger Martin Fournier |
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Key words: labour market, wage differentials, segmentation, enterprise ownership, China |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: October 2003 |
| JEL Classifcation: J31, I28, J18 |
| Author(s): Hon-Kwong Lui Wing Suen |
Abstract: |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: October 2003 |
| JEL Classifcation: E43, E58 |
| Author(s): Petra Gerlach-Kristen |
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Key words: interest rate steps, monetary policy committees |
| Publication Date: September 2003 |
| Author(s): K.C. Fung Harry Huizinga |
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| Publication Date: October 2003 |
| Author(s): Paul Lejot, Douglas Arner, Liu Qiao, and Mylene Chan Marshall Mays |
Abstract: This paper is concerned with markets for tradable debt securities; and with the value and appropriateness of stuctured finance techniques to expand general usage of Asia’s debt markets. The paper examines the condition of the domestic and offshore debt capital markets for Asia-Pacific risk. It traces common patterns of development among the established and nascent public debt securities markets in the region, and looks at the dynamics that will affect these markets in the medium term. Last, it seeks to identify whether Asian markets can be made to accommodate continuous issuing and trading activity typical of advanced economies, and to consider the associated advantages and considerations. |
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| Publication Date: September 2003 |
| Author(s): Y.C. Jao |
Abstract: |
More: Revised: December 2003 |
| Publication Date: March 2003 |
| JEL Classifcation: F310, E520 |
| Author(s): Alex W.H. Chan Nai-fu Chen |
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Key words: Currency board, Hong Kong, Argentina, irrevocable reserve commitment, put option, exchange rate insurance |
| Publication Date: March 2003 |
| JEL Classifcation: F15, F42, L51 |
| Author(s): K.C. Fung Chelsea C. Lin Andrea M. Maechler |
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Key words: European unemployment, economic integration, labor market structure |
| Publication Date: March 2003 |
| JEL Classifcation: P26, P31, G38 |
| Author(s): Eric C. Chang Sonia M.L. Wong |
Abstract: In this study we use a data set that provides information on Chinese Communist Party grassroots organizations’ political control over decision-making in China’s listed firms. Specifically, we examine how different types of shareholders affect (1) the party’s level of decision-making power and (2) the performance implications of party control for firm performance. We obtain two major results. First, we find that the proportion of shares held by domestic individual shareholders is negatively related to the party’s level of decision-making power. Second, we find that the existence of large institutional investors tends to mitigate the negative performance effect of party control. Our results suggest that both the exit and the voice channel are effective at depoliticizing China’s listed firms and improving their performance. This study both addresses an important corporate governance issue relevant to China’s listed firms and offers interesting information in terms of comparative studies of corporate governance and reform strategies in transitional economies. |
More: Published in Journal of Comparative Economics 32 (2004) pp. 617-636. |
Key words: Political Control, Agency Problems, Corporate Governance, China’s Listed Firms, Transitional Economy |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: April 2003 |
| JEL Classifcation: P26, P31, G38 |
| Author(s): Sonia M.L. Wong Sonja Opper Ruyin Hu |
Abstract: This study examines the performance implications of the involvement of grassroots organizations of the Chinese Communist Party (CCP) (hereafter referred to as local party committees) in the decision-making of China’s listed firms. We obtained two results. First, we show that the decision-making power of local party committees relative to the largest shareholders is positively associated with firm performance. This suggests that party control helps contain the largest shareholders’ agency problems and that the existing level of party control is insufficient when viewed from the perspective of controlling the largest shareholders. Second, we show that the decision-making power of local party committees relative to managers is negatively associated with firm performance. This suggests that political costs associated with party control over managers is more detrimental to firm performance than are managers’ agency problems and that the existing level of party control is excessive when viewed from the perspective of controlling managers. On net, our results indicate that the existing level of party control is excessive and that reducing the decision-making power of local party committees tends to improve the performance of China’s listed firms. |
More: Published in Economic Transition 12:1(2004), pp.29-66. |
Key words: Political Control, Depoliticization, Corporate Performance, China’s Listed Firms, Transitional Economy |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: May 2003 |
| Author(s): K.C. Fung Hitomi Iizaka Alan Siu |
Abstract: |
| Publication Date: May 2003 |
| JEL Classifcation: L16, O40, D83 |
| Author(s): Chung Yi Tse |
Abstract: This paper embeds product market search in an AK growth model to study the effects of search frictions on market structure, capital accumulation, and long run growth. The basic hypothesis is that search frictions, in giving rise to market power, result in higher prices and lower output levels. The falling demand for capital stemming from firms cutting back output then lowers the interest rate, dampening capital accumulation and slowing down growth. A decline in search frictions sets the process in reverse, eventually speeding up growth through the change in market structure. In the meantime, the stock market values of firms could fall. |
More: Published in Journal of Economic Theory 116:2 (2004), pp. 323-346. |
Key words: search, market strucuture, long run growth |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: April 2003 |
| JEL Classifcation: L10, L11, O31, D40 |
| Author(s): Chung Yi Tse |
Abstract: |
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Key words: product market search, innovation, new product introduction |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: January 2003 |
| Author(s): Chong-En Bai Zhigang Tao Changqi Wu |
Abstract: |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: April 2003 |
| JEL Classifcation: C78, D83 |
| Author(s): Ettore Damiano Li Hao Wing Suen |
Abstract: |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: April 2003 |
| Author(s): William Chan Wing Suen |
Abstract: |
| Publication Date: January 2003 |
| Author(s): John S. Heywood W.S. Siebert Xiangdong Wei |
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| Publication Date: October 2002 |
| JEL Classifcation: |
| Author(s): Jun Zhu Eric C. Chang J. Michael Pinegar |
Abstract: We examine the profitability of insider trading in Hong Kong between 1993 and 1997. On average, firms in Hong Kong have very concentrated ownership and insiders trade more actively and account for larger fractions of total turnover of their firms’ shares than do US insiders. Inside sellers in Hong Kong earn negligible rents; however, inside buyers earn statistically and economically significant positive mean abnormal returns. Inside buyers’ abnormal returns are especially large for firms in consolidated industries. We argue that such firms are less transparent than firms that operate in more focused businesses and, consequently, that shares of these firms are more likely to provide opportunities for insiders to trade based on privileged information. |
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| Publication Date: May 2002 |
| Author(s): Eric C. Chang Ying Wang |
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| Publication Date: February 2002 |
| Author(s): Eric C. Chang Joseph W. Cheng J. Michael Pinegar |
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| Publication Date: April 2002 |
| Author(s): K.C. Fung Lawrence Lau |
Abstract: |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: November 2002 |
| JEL Classifcation: E32, O40 |
| Author(s): Paul LAU Sau Him |
Abstract: |
Key words: Dynamic stochastic libgeneral equilibrium models; Approximate analytical solution; Endogenous growth |
| Publication Date: December 2002 |
| Author(s): K.C. Fung Hitomi Iizaka Alan Siu |
Abstract: |
| Publication Date: December 2002 |
| Author(s): K.C. Fung and Hitomi Iizaka Chelsea Lin Alan Siu |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: October 2002 |
| JEL Classifcation: P2, P3 |
| Author(s): Sarah Tong |
Abstract: Using firm level data obtained from a survey of about 800 state owned enterprises (SOEs), we investigate the extent of soft budget problem among China’s SOEs and its impact on firm performance. Using both ex ante and ex post soft budget proximate measures, we find that SOEs in China in general face soft budget constraint in the late 1980s. The majority of the firms surveyed pay tax from their after-loan payment profit. In addition, more than one third of the firms depend on government financial when they run into financial hardship to repay loans. Empirical estimation show that that firms facing soft budget constraint are more often perform better than (or as good as) the others in both the level and the change of labor productivity. One reason could be that firms with good performance are more often receive favorable treatment from government. It is often inevitable that government provide financial assistance to SOEs of some sort during economic transition. This is because market institutions are not fully developed and SOEs are still bearing additional social responsibilities. Our finding suggests that government assistance may not necessarily create immediate harmful consequences. |
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Key words: Reform; socialist enterprises and their transitions |
| Publication Date: June 2002 |
| JEL Classifcation: F2, O2 |
| Author(s): K.C. Fung Hitomi Iizaka Sarah Tong |
Abstract: The paper provides a comprehensive overview of the policies and development of foreign direct investment during China’s economic reform in the past two decades. Deng’s opening-up policy initiated in the late 1970s attracted large and growing amount of foreign investment, first from neighboring economies and in recent years increasingly from western industrial countries. Foreign investment has played crucial role in China’s foreign trade as well as domestic industrial restructuring. Foreign investors provide China with much needed finance, especially during the early years of the reform. More importantly, foreign businesses bring with them technology, managerial skills, and international marketing experiences. Today, foreign businesses are important elements in China’s economy. With the accession to the WTO, China has become the one of the most attractive designation for cross-border investment. |
More: Published in Global Economic Review 33:2 (2004), pp. 99-130. |
Key words: International investment, multinational firms; trade policy, factor movement |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: June 2002 |
| JEL Classifcation: F1, O2 |
| Author(s): K.C. Fung Hitomi Iizaka Sarah Tong |
Abstract: The paper provides a comprehensive overview of China’s trade policies and development during the reform. During the past two decades, China’s trade with the rest of the world has growth with an unprecedented speed. At the same time, China achieved remarkable economic growth. China’s trade has some distinct characteristics. First of all, a large portion of China’s trade is what is called processed trade, including trade due to processing and assembly and trade due to processing with imported materials. Secondly, a large portion of China’s trade is conducted by foreign firms in China. Thirdly, China’s trade is geographically concentrated in the southeast part of the country, especially in the province of Guangdong. Fourthly, Hong Kong has played important role in China’s export expansion. A large portion of China’s export go through Hong Kong to be re-exported elsewhere. |
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Key words: Country studies of trade, economic integration; trade policy, factor movement |
| Publication Date: February 2002 |
| JEL Classifcation: F1, R12, P2 |
| Author(s): Chong-En Bai Yingjuan Du and Zhigang Tao Sarah Tong |
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Key words: local protectionism, regional specialization, scale economy, external economy |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: October 2002 |
| Author(s): William Chan Li Hao Wing Suen |
Abstract: |
| Publication Date: September 2002 |
| JEL Classifcation: D0, F1 |
| Author(s): Eric W. Bond Stephen Ching Edwin L.C. Lai |
Abstract: |
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Key words: WTO, accession, negotiation |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: August 2002 |
| Author(s): James P. Vere |
Abstract: |
| Publication Date: August 2002 |
| Author(s): James P. Vere Grace Wong |
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| Publication Date: July 2002 |
| JEL Classifcation: G32 |
| Author(s): Samuel G. H. Huang Frank M. Song |
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Key words: Capital Structure, China capital market, State Owned Enterprises |
| Publication Date: February 2002 |
| JEL Classifcation: G13 |
| Author(s): K. Lam E. Chang M.C. Lee |
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Key words: Option pricing, Variance gamma, Option pricing model, Volatility smiles, Hedging performance |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: February 2002 |
| JEL Classifcation: F1, R12, P2 |
| Author(s): Chong-En Bai, Yingjuan Du, Zhigang Tao Sarah Tong |
Abstract: This paper investigates the determinants of regional specialization using a panel data set covering 32 two-digit industries in 29 Chinese regions over a period of 13 years (1985-1997), paying particular attention to the role of regional protectionism. It is found that there is less geographic concentration in industries where past profit and/or tax margins are high and where the share of employment by the state-owned enterprises is high, reflecting stronger local government protection of these industries. The evidence also supports the external-economies theory and the increasing-returns-to-scale theory, but not the resource-endowment theory, of regional specialization. Finally, the overall time trend of regional specialization of China’s industries is found to have reversed an early drop in the mid 1980s, and registered a significant increase in the later years. |
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Key words: protectionism, regional specialization, scale economy, external economy, resource endowment |
| Publication Date: January 2002 |
| JEL Classifcation: |
| Author(s): Sonja Opper Sonia Wong Ruyin Hu |
Abstract: The implementation of China’s Company Law in 1994 has been regarded as a major tool in the corporatization of China’s enterprises and establishment of a new power structure modeled on modern corporations in market economies. The law attempts to transfer decision-making power from the old party/state organizations to standard organizational bodies of modern corporations. Several observers have already claimed that the power transfer has not been complete in corporatized enterprises, but astonishingly, there have been no attempts to empirically measure the de facto enforcement of the Law and reveal the prevailing pattern of enterprise power structure. Based on a unique survey of the corporate governance structure of 248 companies listed at the Shanghai Stock Exchange, our paper seeks to bridge the gap by approaching the issue with a dual focus; first of all, we seek to reveal whether the current power distribution in China’s listed companies is actually consistent with the formal rules of the Company Law. Secondly, we highlight the role of the local party units in the evolving power structure of the companies. The paper offers a preliminary evaluation of the enforcement of the Company Law and the degree of de facto enterprise de-politicization. The results will be particularly helpful to broaden understanding of the forces and dynamics of institutional and organizational changes in China’s transitional economy. |
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Key words: China, company law, depoliticization, enterprise reform, law enforcement |
| Publication Date: January 2002 |
| JEL Classifcation: |
| Author(s): Sonja Opper Sonia Wong Ruyin Hu |
Abstract: Structural changes of the elite have been a particular focus of sociological and economic research since the outset of reforms in the post-communist transition countries. While most studies on elite changes focus on the relative income position as the indicator for the changing position of the old elite, we concentrate on the strength and pattern of decision-making power of China’s old elite in newly emerging economic entities like listed companies. In line with the power persistence thesis, our analysis shows that the local party committees still succeed at keeping their fingers in the decision-making process even after two decades of economic transition, due to diverse lock-in effects between party and various areas of the institutional environment. We hypothesize that the decision-making power of the local party committees is weakened by the emergence of market and private power during the economic reform and test our hypothesis by employing a survey conducted by the Shanghai Stock Exchange. This study supplements and broadens evidence to market-transition model and emphasizes private power as the major constraints on local Party power persistence in enterprise decision-making. |
More: Published in Kevin T. Leicht (ed.), The Future of Market Transition (Research in Social Stratification and Mobility Vol. 19), Elsevier Science (UK) 2002, pp. 105-138. |
Key words: |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: March 2002 |
| JEL Classifcation: G34, G38, P26 |
| Author(s): Eric Chang Sonia Wong |
Abstract: In the corporate governance literature, the notion that political interference in enterprise decision-making is detrimental to corporate performance is widespread and is buttressed by a large body of theoretical studies. However, few empirical studies support the theories these studies espouse. For our study, we construct measures with which to capture political interference in the decision-making of China’s listed companies and perform direct tests to determine the relationship between political interference in the decision-making of these companies and their performance. We offer evidence that political interference in these companies’ decision-making negatively affects their performance. This study not only addresses an important corporate governance issue for China’s listed companies but also brings together the theoretical and empirical aspects of the corporate performance implications of political interference. |
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Key words: Corporate Governance, Political Interference, Corporate Performance, China’s Listed Companies |
| Publication Date: January 2002 |
| JEL Classifcation: |
| Author(s): Eric Chang Sonia Wong |
Abstract: Agency theory suggests that managerial discretion is negatively related to firm performance. In this study, we investigate how the relationship may be affected by the existence of controlling parties with non-profit-maximizing objectives. In particular, we examine the relationship in China’s listed firms and offer evidence that managerial discretion is related positively to firm performance. Our results suggest that managerial discretion is not necessarily detrimental to firm performance, as traditional agency theory suggests. Rather, managerial discretion may have a positive impact on firm performance if managers’ objectives are better aligned with firm performance than those of controlling parties. |
More: Revised February 2003 |
Key words: managerial discretion, agency theory, controlling shareholder, political control, China’s corporate governance, transitional economy |
| Publication Date: January 2002 |
| JEL Classifcation: F23, F31, D81 |
| Author(s): Eric Chang Kit Pong Wong |
Abstract: |
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Key words: Options, Futures, Multiple currency risks, Prudence |
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| Publication Date: September 2002 |
| JEL Classifcation: D44; L13; L74; R52 |
| Author(s): Stephen Ching Yuming Fu |
Abstract: |
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Key words: urban land market; contestable markets; economic profit; event study; auctions |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: August 2001 |
| JEL Classifcation: D70, D63 |
| Author(s): Stephen Ching Vikas Kakkar |
Abstract: |
| Publication Date: December 2001 |
| JEL Classifcation: G34, G38 |
| Author(s): Samuel Huang Frank Song |
Abstract: |
Key words: Company performance, share issue privatization (SIP), state-owned enterprises (SOEs), IPO, China, reform, Hong Kong capital market |
| Publication Date: October 2001 |
| JEL Classifcation: D81, G11 |
| Author(s): Donald Lien Kit Pong Wong |
Abstract: |
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Key words: Futures, Options, Multiple delivery specifications |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: August 2001 |
| JEL Classifcation: E1 |
| Author(s): Paul Sau-Him Lau |
Abstract: |
Key words: hyperbolic discounting, neoclassical and endogenous growth models |
| Publication Date: May 2001 |
| JEL Classifcation: E13 |
| Author(s): Paul Sau-Him Lau |
Abstract: |
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Key words: Stochastic growth, Approximate analytical solution |
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| Publication Date: November 2001 |
| JEL Classifcation: E24, J23, J64 |
| Author(s): Chung Yi Tse |
Abstract: |
Key words: job search and matching, agglomeration economies, unemployment |
| Publication Date: September 2001 |
| JEL Classifcation: J31, J61, O15 |
| Author(s): Kit-Chun Lam |
Abstract: While the traditional human capital model regards differential lifetime net earnings as the key motivation for emigration, in reality migrants often earn substantially less in the receiving country when they leave a country facing possible changes in political and economic systems. In this paper we incorporate the interaction of economic and political factors in the emigration decision. Empirically we allow economic and political confidence to interact in a discrete choice model of migration decision and test it with the data of Hong Kong when she was facing a transition to a new regime of “one country and two systems”. Our results show that the lack of political confidence increases emigration propensity significantly. Lack of economic confidence also increases emigration propensity though by a lesser extent, whereas expected decrease in income abroad deters emigration by only a small magnitude. Our analysis is pertinent to migration from countries facing political uncertainties such as the LDCs, Asian and former Soviet bloc countries. |
More: Published in Journal of Comparative Economics 30 (September 2002), pp. 448-504. |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: September 2001 |
| JEL Classifcation: C72, E42, F33 |
| Author(s): Chi-shing Chan Chor-yiu Sin Yuk-shing Cheng |
Abstract: |
Key words: Double-market play, Emerging market, Foregone investments, Incomplete information, Partially separating equilibrium, Signalling mechanism |
| Publication Date: October 2001 |
| Author(s): Sarah Yueting Tong |
Abstract: |
| Publication Date: February 2001 |
| Author(s): Tina Yiping Chen |
Abstract: The test was carried out in three steps. First, the optimal solutions of factor demand and output supply were derived for the dynamic adjustment costs model when the function of production is assigned in a quadratic form. Secondly, using data obtained from the OECD’s international sectoral database in the quasi-fixed input demand equations, adjustment coefficients were estimated at the subdivision level of ISIC manufacturing industries. This derivation was employed to Canada, Germany and the United States due to the availability of data. Thirdly, specifying two effects–a trade specialisation effect and a structural change effect–in the empirical model to explain the determinants of labour and capital adjustment coefficients. The results reveal strongly that if an industry has a high degree of intra-industry trade specialisation, the factor adjustments are more intra-industry oriented. |
| Publication Date: April 2001 |
| Author(s): Sarah Yueting Tong |
Abstract: |
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| Publication Date: April 2001 |
| JEL Classifcation: O1 F1 F2 |
| Author(s): Sarah Yueting Tong |
Abstract: |
Key words: Foreign Direct Investment, Technology Transfer, China Economy |
| Publication Date: August 2001 |
| Author(s): Zhigang Tao Y.C. Richard Wong |
Abstract: |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: July 2001 |
| Author(s): Alex Chan Chung Yi Tse |
Abstract: |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: January 2001 |
| JEL Classifcation: D42, E24, J60, L10 |
| Author(s): Chung Yi Tse |
Abstract: |
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Key words: monopoly pricing, wages, unemployment, job-matching |
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| Publication Date: February 2001 |
| Author(s): Li Hao Wing Suen |
Abstract: |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: August 2000 |
| Author(s): Eric W. Bond Stephen Ching Edwin Lai |
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| Publication Date: July 2000 |
| JEL Classifcation: |
| Author(s): K.S. Maurice Tse |
Abstract: The objective of this study is to examine the effect of prevailing market sentiments in real estate markets on the stock market response to the outcomes of real estate auctions in Hong Kong. The reactions of stock market to the winners of the auctions have at least two interesting implications. On one hand, the success in acquiring a real estate implies that the developer has acquired a project with potentially positive net present value and the stock price of the developers should rise. Bids on real estate development projects are often based on the developer’s estimate of potential costs and profits. These estimates, when conditioned on the current market information, may be highly influenced by the prevailing market sentiments. The complexity of estimating the development costs may cause the developers to arrive at different estimates and thereby different bids. The prevailing market sentiments in the real estate markets may also affect the bidding behavior of the bidders. During periods when the real estate prices are soaring, the bidders may bid more aggressively against each other. As a result, the successful bidder may be the victim of the “winner’s curse”. If this is the case, investors in the stock market should view this as a factor that negatively affects the stock price of the developer, thus discounting the stock price of the winning firm. The availability of the auction records and the stock prices in Hong Kong provides us an excellent opportunity to test the auction theory and allows us to examine how the stock market evaluates these two counteracting effects. Moreover, we can investigate how market sentiments in the real estate markets may affect the stock market response to the auction winners. |
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| Publication Date: September 2000 |
| Author(s): Alan Siu |
Abstract: |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: September 2000 |
| JEL Classifcation: J12, D10 |
| Author(s): Wing Suen, William Chan Junsen Zhang |
Abstract: |
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Key words: dowry, intra-household allocation, inter-generational transfers |
| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: April 2000 |
| Author(s): Chang-Tai Hsieh |
Abstract: |
| Publication Date: April 2000 |
| Author(s): Chang-Tai Hsieh Sarit Cohen |
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| Publication Date: August 2000 |
| Author(s): Lok Sang Ho |
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| Publication Date: June 2000 |
| JEL Classifcation: E32, R21, R31 |
| Author(s): Lok Sang Ho |
Abstract: |
| Publication Date: May 2000 |
| JEL Classifcation: E24, J64, R39 |
| Author(s): Chung Yi Tse |
Abstract: |
Key words: job matching, agglomeration economies, unemployment |
| Publication Date: April 2000 |
| Author(s): William Chan Wing Suen |
Abstract: |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: March 2000 |
| Author(s): Diane E. Clark Chang-Tai Hsieh |
Abstract: |
| Publication Date: February 2000 |
| JEL Classifcation: D21; J31 |
| Author(s): Udo Broll Kit Pong Wong |
Abstract: |
Key words: Efficiency wages; Price uncertainty; Futures markets |
| Publication Date: February 2000 |
| JEL Classifcation: E24, J60, J63 |
| Author(s): Charles Ka Yie Leung, Weslie Yuk Fai Chan Chung Yie Tse |
Abstract: |
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Key words: Unemployment, vacancy, Hong Kong labor market |
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| Publication Date: February 2000 |
| JEL Classifcation: C22, E3, G12 |
| Author(s): Francis K. Cheung Shawn Ni Alan Siu |
Abstract: |
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Key words: Real estate investment, asset pricing, GMM estimation |
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| Publication Date: April 2000 |
| Author(s): Wing Suen |
Abstract: |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: March 2000 |
| JEL Classifcation: E300, O530 |
| Author(s): Chi Fai Leung and Wing Suen |
Abstract: |
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Key words: Hong Kong Business Cycles |
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| Publication Date: April 2000 |
| JEL Classifcation: J16, J71 |
| Author(s): Yun-Wing Sung, Junsen Zhang and Chi-Shing Chan |
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Key words: gender wage differentials, occupational segregation, Hong Kong |
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| Publication Date: September 1999 |
| Author(s): Simon Fan and Hon-Kwong Lui |
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| Publication Date: December 1999 |
| Author(s): William Chan |
Abstract: |
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| PDF: The paper is no longer available here. Please refer to published source. |
| Publication Date: October 1999 |
| Author(s): William Chan and Wing Suen |
Abstract: |
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| PDF: The paper is no longer available here. Please refer to published source. |