Building on the success of the first webinar in July, the second session of the HKU Business School x HKGCC Economic Reboot Webinar Series – “Small Government: Time for a Rethink?” – was successfully concluded on August 17, 2021 (Tuesday).

This session reviewed the “small-government, big market” ideology of the Hong Kong government and discussed whether there is a need to increase government intervention for Hong Kong to restore public trust and a sense of justice. Professor Zhiwu Chen, Chair Professor of Finance at HKU Business School and Director of Asia Global Institute has an interesting discussion with Mr. Nick Sallnow-Smith, Former Chairman of the Lion Rock Institute Hong Kong moderated by Mr. Tony Miller, Chairman of the Chamber’s Economic Policy Committee.

“If you want to see how the free market really works, this is the place to come,” said Milton Friedman when he was in Hong Kong some 30 years ago. Central to the celebrated economist’s appreciation of Hong Kong was the minimal role that the government played, or was perceived to play, in the economy. Since then, there have been calls in Hong Kong to rethink free-market capitalism because of perceived failings such as unequal wealth distribution and environmental damage.

However, Mr. Sallnow-Smith pointed out in his speech that the “laissez-faire approach” in Hong Kong is no longer the same as the one in 30 years ago, as the scale of government control, management and intervention is significantly greater now than it was in 1970s. He believes that more government intervention may not be necessary for the current situation in Hong Kong as it may be harmful to the economic freedom of business and individuals, which Hong Kong has been performing well comparing with other western countries. Instead of copying the practices of other OECD countries, Hong Kong should find out the right approach best suited to itself and consider the type of social arrangements to be used for improving the living standard and ensuring a sustainable economic growth.

Professor Chen also agreed that Hong Kong should avoid over intervention by the government as it may cause Hong Kong to lose its own attractiveness. He elaborated this idea by some of his personal experience and suggests to give the authority to elected members from Legislative Council, rather than having private clubs or associations to decide “the rules of game” as they are normally putting too much focus on the success of business, and sometimes may neglect the overall interest of the community.

In the panel discussion and Q&A session, more in-depth topics about government intervention were discussed such as the constitutional constraint of limiting the government expenditure to 20 % of GDP; the appropriate level of intervention to different sectors or industries in the society; etc. There was also another follow-up discussion on Professor Chen and Mr. Sallnow-Smith’s point of view on how government intervention will harm the attractiveness of Hong Kong and whether civil servants or entrepreneurs will be better policymakers.

The next session of the webinar series will be on September 20, with Dr. Stephen Chiu, Associate Professor in Economics at HKU Business School and Mr. Andrew Fennell, Lead Analyst for China and Hong Kong at Fitch Ratings to discuss about the Hong Kong’s tax regime and fiscal sustainability.

A team of two students from HKU Business School won the top 10 in World Asian Case Competition 2021. Themed on “Creating unforgettable, lifelong experiences for students”, the competition requires participants to research on a selected Asian company that has achieved significant success and became globally powerful brands. Competing teams were expected to highlight certain milestones that contributed to the brand’s tremendous success and give breakthrough strategies that can help the company overcome difficulties and challenges in their business model.

World Asian Case Competition (WACC) is an annual international case competition organised by the Academy of Asian Business. It was divided into three parts, namely (i) short proposal in around 400 words, (ii) final proposal in around 10,000 words, and (iii) final presentation for around 15 minutes.

Advisor:

Dr. Winnie Leung, Assistant Dean (Undergraduate), The University of Hong Kong. Also one of the awardees of Best Advisor Award.

Team Member:

Miss Kakkar Sana, BEcon&Fin, Year 3
Mr. Sharma Jayant, BBA(IBGM), Year 3

 (The team comprises 1 more team member from the Faculty of Science, The University of Hong Kong.)

Students sharing:

“Participating in the World Asia Case Competition 2021 gave me an effective platform to demonstrate and further hone my communication and collaboration skills. This experience gave me the opportunity to learn from and compete with elite teams from renowned Universities around the globe, and enabled me to gain exposure to multiple perspectives. I was very grateful to my advisor and fellow team members for making this an extremely memorable experience for me. I look forward to participating in more of such competitions in the future.”   – Sharma Jayant, BBA(IBGM)

“The World Asian Case Competition 2021 gave me the opportunity to be a part of an active and engaged process and interact with like-minded people throughout the journey. This allowed me to gain a multifaceted view of the world as I draw from each participant’s perspectives and experiences. Being engaged in fruitful discussions with other competing teams also inspired me to think outside the box and come up with new ideas. Most importantly, I enjoyed exploring interesting case topics, researching global trends and honing my presentation, case cracking and analytical skills. I believed this experience was truly rewarding and would definitely prove to be a turning point for my future.”   – Kakkar Sana, BEcon&Fin

As a development economist, Dr. Gedeon Lim has been dedicated to the study of reducing poverty and facilitating economic growth and development. He joined HKU Business School in August 2020 as an Assistant Professor in Economics. Our young and energetic Singaporean scholar is thrilled to have the opportunity to collaborate and generate new knowledge with local scholars.

Utilizing interdisciplinary tools at the frontier of development economics

Since the 1950s, development economists have sought to understand the obstacles facing economic growth in developing countries by shining a light on pertinent issues. This has, however, mainly taken a theoretical perspective. In contrast, Dr. Lim says that development economics today has taken an increasingly empirical turn: “Today, development economists like me often spend much of our time in the field, and, increasingly, collaborate with scholars from multiple disciplines, leaders from regional communities, and even local political figures.” To that end, Dr. Lim contends that it was really the opportunities to engage with local communities and study, first-hand, the impact of development policies in the real world that drew him towards the study of development economics. “It is a very lively and vivid discipline – especially with an increasingly diverse group of economists becoming interested in development issues,” he commented.

Dr. Lim also had an anecdote to share in relation to his connection to HKU: “During graduate school, I actually read a great deal of research papers by Professor James Kung, so I was, naturally, very excited to have the chance to join HKU, a growing hub for the study of development economics and political economy issues in Asia,” said Dr. Lim.

Does higher political pay drive better performance from political leaders?

For his doctoral thesis, Dr. Lim spent half a year in 2019 in West Java, Indonesia, conducting a historical recall survey involving 193 villages and 965 respondents. The working paper titled “Does paying local leaders lead to better economic development?” aims to investigate the relationship between higher political pay and performance of political leaders.

In particular, historical institutions in West Java provided Dr. Lim with a fascinating backdrop towards studying this issue, in the context of rural village chiefs. “Unlike most civil servants who are either unpaid or rewarded by cash, elected village chiefs in parts of West Java are awarded cultivation rights over village rice fields in lieu of compensation. The chief, in turn, is obligated to sharecrop or lease out the land to villagers at fixed prices. Villagers harvest the rice for the chief and sales from the rice harvest serve as political rents,” explained Dr. Lim.

In particular, Dr. Lim explained that a rare, unique feature of this setting is the immutability of these rents: “Being tied to a fixed plot of land, political rents in this setting are as fixed as they can get. This is unlike many other contexts like, say, national parliaments where political pay is often adjusted and decided by leaders themselves.” Hence, this helps avoid a key endogeneity issue that has plagued the study of political pay – that politicians often change the levels of political pay and these changes are often correlated with the performance of sitting politicians.

Following detailed investigations, Dr. Lim found that villages where chiefs received higher land rents are richer and more developed. In particular, the study found a positive relationship between higher land rents and stronger night-time light intensity, lower child mortality, and higher years of education among the village population. “The prevailing evidence suggests that cultivation rights over village rice land gives chiefs a stake in local village development, and this direct link between chiefs’ material rewards and village development appears to be a key factor driving their performance” said Dr. Lim.

To that end, Dr. Lim’s study has been published in the World Bank Blog. By shedding new light on the importance of adequate political compensation in rural development, Dr. Lim hopes that it could, perhaps, provide some guidance to regional researchers and policy makers in designing new compensation packages for rural level civil servants.

Building towards greater engagement among local scholars in Hong Kong

Dr. Lim is also a driving force in promoting academic collaboration and knowledge exchange. With the easing of social distancing measures, Dr. Lim, together with Dr. John Klopfer and Dr. Sangyoon Park, organized the 1st Joint Hong Kong Empirical Microeconomics Workshop 2021 this summer. The workshop provided economics scholars in Hong Kong with a common platform to share their latest research findings, interact and exchange ideas.

“I think the high quality of submissions received really demonstrates how Hong Kong is fast becoming one of the top places in Asia for cutting-edge economics research. Hence, even as local universities continue to enjoy healthy competition, we should definitely facilitate more such events to encourage interactions and the exchange of knowledge,” said Dr. Lim. In his view, this workshop is a definite step towards fostering stronger ties among local scholars and, by bringing together top economics scholars in Hong Kong, he hopes that these events will generate both direct intellectual benefits and spill-overs to the development of the city, the region, and, perhaps, even the world over.

Study reveals Index Funds put less efforts in monitoring their portfolio firms, resulted in
power imbalance between investors and firm managements

Over the past three decades, the rise of passively managed index funds has transformed how Americans and other investors around the world invest. In 1990, index funds held only less than 1% of all mutual fund assets. By 2018, this had grown to more than 30%, which worth over US$6 trillion and now represent the largest shareholders of many US corporations.

The massive rise in popularity of index fund investment drives the investors’ attention about monitoring and corporate governance. A recent study by Professor Roni Michaely, Professor in Finance of HKU Business School and his co-authors shows that, comparing to active funds, index funds monitor less effectively and cede power to firm management. This results in negative consequences for corporate governance and firm value. It may also further shift the power from investors to firm managements, which would be of major concern to investors.

This research was done by Professor Michaely and co-authors Davidson Heath and Matthew Ringgenberg from University of Utah Eccles School of Business and Daniele Macciocchi from University of Miami Herbert Business School. The paper is accepted by the “Review of Financial Studies”, one of the premier journals for finance-related academic researches.

“Three main options for a shareholder to disagree with a firm’s management including voting, engaging with management and selling shares,” Professor Michaely said. “To better evaluate and compare the monitoring behaviour of index funds and active funds, we have examined each of these monitoring channels using comprehensive data on US equity mutual and exchange traded funds from 2004 to 2018.”

In the examination of the voting behaviour, index funds vote with firm management 54.3% of the time, while active funds do so only 47.3% of the time for contentious governance issues. When examining the engagement of index funds with their portfolio firms, the research finds no evidence that index funds engage publicly or privately with their portfolio firms in an effective manner. When index funds hold more of a firm’s stock, the number or type of proposals that are tabled at annual shareholder meetings do not change, and a decrease in the proportion of approved shareholder proposals is observed. And, in terms of divestment, index funds do not exit a position even after losing a shareholder vote, whereas active funds do, meaning that they do not divest from a firm to express dissatisfaction with its management.

After a wide variety of tests and specifications, the results suggest that index funds are weaker monitors than active funds. “Relative to the active funds they are replacing, index funds have limited incentives and resources to invest in costly monitoring,’ Professor Michaely elaborated his findings. “Moreover, the data consistently shows that corporate governance does not improve and in fact deteriorates along several dimensions when index funds replace active funds. We therefore can conclude that the rise of index investing shifts power from investors to corporate managers.”

The findings have important policy implications as regulators around the world struggle with how to better govern and monitor management and firms’ behaviour; especially in light of recent claims that index funds are good monitors who improve corporate governance. There has been several suggestions to reward long-term investors with greater voting power. The findings of this paper—that index funds (who are long term investors) are worse monitors, indicate that rewarding them with greater voting power will result in the opposite outcome: less monitoring and more power to management. As the rise of passive investing continues, a check on managerial power is suggested for balancing the interest between investors and firm management.

Full version of this research paper:
Do Index Funds Monitor?
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3259433

Born and raised in Guangdong, Dr. Yanhui Wu always has a special attachment to Hong Kong. Joining us in January 2020 as an Associate Professor in Economics and Management and Strategy, Dr. Wu sees it as a great opportunity to contribute his academic intellect for our betterment and progression.

Research for the betterment of the society

Starting off as a financial journalist, Dr. Wu developed a strong interest in uncovering social issues in China. “But a journalist could only do so much, so I restarted my academic career in search of knowledge and ways to untie persisting dead nots,” said Dr. Wu. At graduate school, he explored various research topics he considered socially important, ranging from the political role of the mass media, to the provision of incentives within firms, and how information technology and globalisation affect returns to talent and income inequalities.

The engine of economic growth in the digital era

Dr. Wu believes that innovation derived from creative destruction is a key driver of economic prosperity. He explains, “To understand the process of creative destruction, a central question is how market competition affects this process and the resulting economic outcomes. Although economists have a clear answer to this question in the context of the traditional manufacturing-based economy, we only have a vague idea about how competition works in the modern digital economy.”

To push this research line forward, Dr. Wu focuses his recent work on the so-called gig economy, in which individuals work as independent contractors, freelancers, and on-call workers. Observing the rise of the gig economy due to the emergence of digital platforms, he embarks on investigating how product competition affects gig workers’ behaviour and product innovation in platform markets.

Although addressing big questions, Dr. Wu mostly uses microeconomic methodology with granular data. In one of his latest papers, he assembles detailed data on the writing activities of Chinese online novelists to study innovation in platform markets. He finds that market competition motivates writers who receive royalty incomes to write more creatively, but the effect is insignificant to writers who are paid by the word and are rewarded as a salaried worker. This finding shows that reward systems are an important mediator for market competition to affect gig workers’ creative production. A more striking finding is that platform companies develop a bias of disproportionately promoting the novels authored by paid-by-the-word writers who hand over the profit accrued to book sales to platforms. Competition exacerbates this platform bias and thus hurts innovation. “Given that the gig economy is an important marketplace for grassroots innovation, this research has implications for regulatory policies on market competition,” said Dr. Wu.

In several ongoing projects, Dr. Wu aims to study how the emergence of the gig economy affects employment, education, and social mobility in China. He plans to combine big data and experimental methods to explore this exciting and challenging topic.

Understanding the transition of Hong Kong Economy

Dr. Wu is enthusiastic about studying economic problems in a changing world, and Hong Kong naturally catches his intellectual interest. “No doubt that many economic theories and empirical research on other cities are relevant to Hong Kong. But Hong Kong is unique and demands new solutions to its problems,” explains Dr. Wu.

Dr. Wu is very keen to take the first step to paint a clear big picture of the Hong Kong economy from micro data. He said, “Careful analysis of firms, households, and individuals is essential for understanding the dynamics of the Hong Kong economy and offering useful solutions.”

The first session of HKU Business School X HKGCC Webinar Series was held on July 13 in hybrid mode.

To celebrate its 20th anniversary milestone, HKU Business School has been implementing different initiatives to keep re-inventing itself, to advance the knowledge frontier and to create positive impact locally, regionally and internationally. From July onwards, the School joins hands with The Hong Kong General Chamber of Commerce (HKGCC) to launch a webinar series, with an aim of providing new insights and knowledge to rejuvenate the local economy and guide Hong Kong out of the current economic dilemma, promoting on-going dialogue among different stakeholders of the society.

The first session of the webinar series, themed as “Reinventing Hong Kong’s Economy”, was held on July 13, 2021 with more than 250 participants joined in hybrid mode. During the webinar, Professor Heiwai Tang, Professor in Economics, HKU Business School and Dr. Michael Spencer, the Chief Economist of Deutsche Bank discussed the way forward for Hong Kong to remain relevant and competitive in a post-covid landscape. The session was moderated by Mr. Tony Miller, Chairman of the Chamber’s Economic Policy Committee.

At the beginning of the session, Dr. Michael Spencer analysed a few key challenges for Hong Kong including the aging problem, climate change and the decline of share in global trade. In terms of the future trends, he expects a disappearance of border between Hong Kong and mainland China, and a continuously high price for local property in the future. Regarding these challenges and future changes in Hong Kong, he recommends an increase in research spending for Hong Kong to embrace the new “knowledge-based economy”, putting more focus on high-end services, advanced technology and intellectual property intensive activities.

Professor Heiwai Tang, Professor in Economics, HKU Business School shared his views to the local economy during the webinar.

“Hong Kong has been enjoying the benefit as a middleman during the period of ‘hyper-globalisation’ since 1949. However, it is now facing a huge challenge of deglobalisation (also being called as ‘slowbalisation’) and a declining role for helping mainland China to open the foreign market,” said Professor Tang. He also further elaborated some other kinds of challenges such as income and wealth inequality, imbalance income and living expenses, over-reliance on finance industry, limited labour mobility and shortage in housing market, etc.

To cope with these challenges, he has proposed some policy recommendations. He mentioned, “The third economic transformation requires a change in mindset and solutions to the talent shortage problem from both demand and supply side. There is also an urgent need for reindustrialisation, which can act as an effective tool to improve social inequity, increase job mobility, create positive externalities to other sectors, to complete the ecosystem of researches and manufacturing and also facilitate the integration of Hong Kong to the Greater Bay Area.”

During the panel discussion, a few heated topics in economic were discussed. Both of the speakers shared their insights on the topic of economic decoupling, reassurance and the four pillars industries during the discussion. The session ends with a Q&A session, and Mr. Miller concludes this fruitful discussion with a cliché but true quote to the Hongkongers: “Always plan for the best, and prepare for the worse”.

The 1^st Joint Hong Kong Empirical Microeconomics Workshop (HKEMW) 2021 was successfully held on June 11 and June 25. The workshop attracted a total of 40 scholars and students from local universities and the Cheung Kong Graduate School of Business.

To facilitate cross-university interactions, HKU Business School joined hands with HKUST to kick start the HKEMW series. The event marks the first of its kind in Hong Kong since Covid-19 started, spearheaded by the Economic Area of HKU Business School, and chaired by Dr. Gedeon Lim, Dr. John Klopfer, and Dr. Sangyoon Park.

“The pandemic will not stop us from creating knowledge for the world. Through this workshop series, we aim to facilitate the interaction and exchange of ideas between economic scholars in Hong Kong, especially in times of coronavirus where there are few face-to-face events. This is a small step towards promoting cross-university knowledge exchange and fostering camaraderie among local scholars and I look forward to upcoming workshops hosted by our partner universities. In particular, we would like to thank colleagues at HKUST and Professor James Kung for his unwavering support. The event would not have been possible without their help.” said Dr. Lim.

Dr. Gedeon Lim, Assistant Professor at HKU Business School, presents the paper “Ethnic Segregation & Politics: Evidence from Malaysia”

A total of 15 papers from empirical micro-economists in Hong Kong covering diverse fields of economic development, political economy, economic history, media, health, productivity, labour, and matching were presented during the workshop. Insightful sharing and discussions were made among participants.

Dr. Bryant Kim, Associate Professor, HKUST presents the paper “Do Part-time Jobs Attract Less Productive Workers? Evidence from Field Experiment on Data Entry Clerks in Ethiopia”

The second session was hosted by HKUST on June 25 at LSKG012, G/F, Lee Shau Kee Business Building. The workshop will be a recurrent bi-weekly event, hosted by participating institutions, for academics in Hong Kong to exchange ideas.

Through the experiential learning course, Business Consulting Practicum (BCP), students have an opportunity to work in teams to provide consulting services, and leverage business knowledge to solve specific real-life business problems for their assigned clients, under the professional guidance of teachers and mentors.

The six-week course provides students with 3 days of intensive training on consulting related skills. It allows the students to practice critical thinking, analytical skills and problem-solving skills and become more effective in working with clients, teammates and others. It also provides a free service to the organisations, mainly local small and medium-sized enterprises (SMEs).

This year, 33 students were teamed up to provide consulting services for 8 different companies. The course ended with a presentation held on July 17, 2021. In response to the impact brought by the pandemic, students were asked to provide solutions mainly on e-marketing and client acquisition. Clients and the mentors are impressed by the students’ creativity and the practicalness of the suggested solutions.

Sharing from the students:

So Ho Tin, Jacky

BCP 2021 provides me with an invaluable opportunity to be a business consultant and tackle business difficulties for my client. I can utilise the knowledge I have learned in lectures in a real-life business setting. Other than that, I developed soft skills like interpersonal skills and problem-solving skills during the 6 weeks program. Not to mention that my mentor was more than willing to provide my group with helpful advice.

Leung Shun Yan, Jamie

The most valuable thing that BCP offers is the client-facing opportunity. We face a real-life business scenario in which we need to consider the client’s budget and the marketing goals when making recommendations. We also need to keep adjusting the strategies to keep ourselves in line with the client’s expectations. During this process, we learn to communicate, negotiate and understand the difficulties of the client. This is a unique experience that we cannot have in the academic courses.

Three undergraduate FBE students took part in the HKSI Institute Scholarship Programme 2021 and were awarded 1st Runner-up, Team Award and Finalists.

Since first introduced in 2004, the HKSI Institute Scholarship Programme has provided more than 800 university students with an avenue to advance their career development for the finance industry.

For this year, participants had to submit a 1,000-word essay on the topic “How the COVID-19 has changed the world?”. Selected finalists were teamed up to work on the research project on the topic “Identify 3 major challenges impacting Research Project Sponsor’s sector due to COVID-19, and propose measures to address them” and presentation. The awardees had been offered cash prizes, 1-year HKSI membership and HKSI Institute eCredit.

Sharing from the awardees

1st Runner-up & Team Award – LAU Pak Hei Austin, BBA(Law)&LLB

“The HKSI Scholarship Program has surely been a rewarding journey for a year 1 student like me. Through rounds of oral presentations and essay writings, I have learned how Covid-19 made an impact to the banking sector and to financial regulations. My mentor, Mr. Dicky Hung from SPD Bank provided me with career insights and guidance on my group project. The program allowed me to realize the potential of my double-degree program and kick start my career in an early stage.”

Finalist – Cheung Lok Yiu Anson, BBA(Acc&Fin) 

“It is my honour to be one of the awardees of the HKSI Institute Scholarship Programme 2021 where I have the exclusive and precious opportunity to connect, network with and learn from business leaders!  I have also gained insights in the accounting industry after conducting the research project with my teammate.”

Finalist – Ma Leo, BBA(Law)&LLB

“The HKSI Institute Scholarship is an invaluable experience that allows me to explore challenges and opportunities from companies’ perspective, as well as to learn from and connect with experienced practitioners and aspiring peers. Students from all business disciplines should not hesitate to join and explore your potential.”

Professor Anna Wong, Programme Director of Asset Management and Private Banking, and ex-Director of the Hong Kong Securities and Investment Institute was at the Award Presentation and met Austin, Anson and Leo.    

“The best learning for students is learning outside of the classroom, the HKSI Scholarship Programme provides students with an excellent platform to learn and interact directly with industry practitioners.  My congratulations go to Austin, Anson and Leo.”

From the left: Ms Katherine Ng, Chairman, HKSI, Mr Leo Ma, Ms. Anson Cheung, Prof Anna Wong, Mr. Austin Lau, Ms Ruth Kung, Chief Executive, HKSI

The University of Hong Kong (HKU) and the People’s Government of Futian District in Shenzhen have signed a partnership agreement. The two parties, through HKU Business School, will leverage on HKU’s advantages in talent development, research and innovation, and global influence to create a benchmark model of integrating teaching and learning, facilitating industry-academia collaboration and developing talent mobility between Shenzhen and Hong Kong. The partnership will accelerate the integration of Hong Kong with the rest of the Greater Bay Area, contributing to the long-term economic development of the two regions.

With its unique positioning of being deeply rooted in Hong Kong, fully engaged with China and truly international, HKU Business School aims to establish a world-leading platform for teaching and learning, as well as innovative research to create a global talent pool. Under this agreement, the School plans to open a Shenzhen Campus in Futian District by early 2022. Adopting a “One School, Two Regions” model, the 10,000sqm campus will provide ample space for HKU students, alumni and partners to carry out interactive teaching and learning activities, encouraging research discussion and ideas exchange on entrepreneurship.

Serving as a financial centre, Futian District is centrally located in Shenzhen. Its financial technology industry has begun to take shape, gaining a competitive edge in the globe.  Futian has a solid foundation in integrating industry with teaching and learning, as well as research, which is favourable to the development of a new university model that emphasises “multi-campus, immersion and advancement”. Looking forward, the University will work hand in hand with the government of Futian District to continuously explore collaboration potential in financial technology (FinTech) in hope of contributing to the development of FinTech industry in Mainland China and the rest of the world.