People

We document that firms prefer counties with higher ethnic diversity in locating their interstate investments, especially for those pursuing innovation, seeking to establish service centers, or capable of managing a diverse workforce. We also find some evidence that interstate investment in high ethnic diversity locations results in increased patent applications, sales growth, positive media coverage, and overall operating performance. Taken together, we show that firms prefer to invest in ethnically diverse locations as they recognize the potential benefits of leveraging a diverse labor supply such as enhancing problem-solving, innovation, and performance.

In this column last week, we analysed the advantages of captive insurance companies in risk management and cost control. However, not all companies are suited to establishing their own captive insurers. What does it take for companies to achieve the intended risk-diversification objectives while avoiding the creation of new sources of risk?

Nowadays, enterprises frequently face a dilemma in risk management and insurance. On the one hand, they are exposed to increasingly complex and numerous risks, from natural disasters and environmental liabilities to cybersecurity threats and supply-chain disruptions, which pose a constant threat to business operations and financial stability.

We study whether legal liability protection helps companies to recruit and retain high-quality independent directors. We conduct difference-in-differences analyses exploiting the 1999 Ninth Circuit Court of Appeals Ruling on the Silicon Graphics case, which substantially raised the bar for filing securities class action (SCA) lawsuits as a shock. We document supporting evidence for the talent attraction hypothesis by showing improvements in newly recruited independent director quality following the ruling, but only for candidates who are previously not exposed to SCA litigation risk. The effects are stronger for firms facing greater litigation risk ex ante or smaller local supplies of director candidates. Results are more evident for experience-based quality dimensions. We also analyze a sample of voluntary independent director departures and find little support for the talent retention hypothesis, suggesting that more complex factors enter into a director’s continuation decision once a director is already exposed to SCA litigation risk. A policy implication is that liability protection can be useful in attracting more unexposed high-quality candidates to the pool of public boards but does little to attract high-quality candidates who are already in the pool of public firms.

We use a novel experiment in China to examine the effects of having a quasi-official investor own a small number of shares on specific firm outcomes. We find that, relative to control firms, pilot firms experience an increase in dissenting votes from independent directors, a reduction in tunneling and earnings management activities, and an improvement in merger performance. Independent directors questioned by the quasi-official shareholder in activism events subsequently lose board seats in the director market. Overall, our results shed light on a new mechanism for enhancing the protection of minority shareholders.

The complexity of financial products has led to widespread recognition of the need to protect financial consumers. Many countries have systems in place that allow consumers to file complaints against financial service providers with regulators. Whereas some jurisdictions keep this information private for internal regulatory purposes, others have begun to disclose it publicly. Proponents of public disclosure argue it educates consumers and helps them make informed decisions. A notable example is the U.S. Consumer Financial Protection Bureau’s (CFPB) initiative to disclose consumer complaints against banks. However, this approach can potentially harm the reputation of financial institutions if the complaints are not presented with adequate context, leading to misleading perceptions.

As distributing cash dividends has been a growing trend in A-share market, related regulations and taxation have also become issues of concern for investors. In recent years, the China Securities Regulatory Commission has implemented a series of measures to enhance the regulation of distributing cash dividends by listed companies, and encourage the increase of dividend pay-out ratios, which reflects the regulator's commitment to protecting the interests of individual investors.

As distributing cash dividends has been a growing trend in A-share market, related regulations and taxation have also become issues of concern for investors. In recent years, the China Securities Regulatory Commission has implemented a series of measures to enhance the regulation of distributing cash dividends by listed companies, and encourage the increase of dividend pay-out ratios, which reflects the regulator's commitment to protecting the interests of individual investors.

We examine whether Enterprise Resource Planning system (ERP) usage affects the stock price crash risk of Chinese firms, and whether the effect differs between state-owned enterprises (SOEs) and non-SOEs. We find that ERP usage is associated with lower stock price crash risk, but this pattern is largely concentrated in non-SOEs, consistent with our arguments that more acute shareholder-manager agency problem and more organizational rigidity can inhibit the successful assimilation of ERP. The results are further confirmed by a difference-in-differences analysis exploiting the privatization of SOEs as a negative shock to their shareholder-manager agency problem and organizational rigidity. Three channels help explain why ERP usage helps lower stock price crash risk: it improves the quality of internal control, reduces the chance of financial restatements, and mitigates information asymmetry, and all effects are concentrated in non-SOEs. Our study is among the first to examine how ERP usage affects stock price crash risk – an overall outcome measure of a firm's information environment. Using SOEs vs. non-SOEs as a powerful measure of the shareholder-manager agency problem and organizational rigidity, it also represents the first test of the moderating effect of agency problem and organizational rigidity on the effectiveness of ERP usage.