Using brokerage mergers and closures as natural experiments, we examine how exogenous changes in the information environment affect a firm’s financing choice. Our difference-in-differences approach shows that exogenous increases in information asymmetry lead firms to substitute away from equity and public debt toward bank debt. Firms with higher risk tend to substitute equity for bank debt, and firms with lower risk tend to substitute bonds for bank debt. The effect of the change in the information environment on a firm’s financing choice is more pronounced for firms with worse information environments, such as those with few initial analysts and younger firms. We demonstrate that the mechanism of the change is through a reduction of the issuance of equity and bonds but with an increase of the issuance of bank loans. Further analysis reveals that such firms tend to reduce long-term borrowing, reduce their issuance of subordinated debt, and increase their revolving credit lines.
- BBA, University of International Business and Economics (China)
- MS in Finance, Boston College (U.S.A.)
- PH.D., Massachusetts of Institute of Technology (U.S.A.)
Dr. Li, Xu is an associate professor of accounting. He obtained his Bachelor’s degree in International Business Administration from University of International Business and Economics, the Master’s degree in Finance from Boston College, and the PhD degree in accounting from Massachusetts Institute of Technology. Prior to joining University of Hong Kong, Dr. Li worked in University of Texas at Dallas and Lehigh University.
Dr. Li’s teaching interests include financial accounting, and financial statement analysis. He has taught various courses, such as Introduction to Financial Accounting, Financial Statement Analysis, Accounting for Business Decisions, and Business Valuation at both undergraduate and graduate levels.
Dr. Li’s research interests include the capital market’s reaction on accounting information, the role of information intermediaries, insider trading and information asymmetry, as well as characteristics and impact of firms’ disclosure to the investment community.
- “Institutional Investor Inattention and Audit Quality” Coauthored with Derek Chan and Qian Xin, Journal of Accounting and Public Policy, vol. 40(3), 106857, May-June 2021
- “Does Change in the Information Environment Affect Financing Choices?” Coauthored with Chen Lin and Xintong Zhan, Management Science, vol. 65(12), 5676-5696, December 2019
- “Unfolding China’s State-owned Corporate Empires and Mitigating Agency Hazards: Effects of Foreign Investments and Innovativeness” Coauthored with Jianjun Zhu and Caleb Tse, Journal of World Business, vol. 54(3), 191-212, April 2019
- “Corporate Governance and Resource Allocation Efficiency: Evidence from IPO Regulation in China” Coauthored with Xinyuan Chen, Jun Huang, and Tianshu Zhang, Journal of International Accounting Research, vol. 17(3), 43-67, Fall 2018
- “Underwriter-Auditor Relationship and Pre-IPO Earnings Management: Evidence from China” Coauthored with Xingqiang Du, Xuejiao Liu, and Shaojuan Lai, Journal of Business Ethics, vol. 152(2), 365-392, October 2018
- “Analyst Firm Coverage and Forecast Accuracy: The Effect of Regulation Fair Disclosure” Coauthored with Yi Dong, Nan Hu, and Ling Liu, Abacus, vol. 53(4), 450-484, December 2017
- “Words versus Deeds: Evidence from Post-Call Manager Trades” Coauthored with Paul Brockman, James Cicon and McKay Price, Financial Management, vol. 46(4), 965-994, Winter 2017
- “The Effect of Previous Working Relationship between Rotating Partners on Mandatory Audit Partner Rotation” Coauthored with Min Zhang and Haoran Xu, The International Journal of Accounting, vol. 52(2), 101-121, June 2017 (Leading article)
- “Hollowing out of the Real Economy: Evidence from China’s Listed Firms” Coauthored with Xiang Shao and Zhigang Tao, Frontiers of Economics in China, vol. 11(3), 390-409, September 2016
- “Differences in Conference Call Tones: Managers vs. Analysts” Coauthored with Paul Brockman and McKay Price, Financial Analysts Journal, vol. 71(4), 24-42, July/August 2015
- “Conditional Conservatism and Audit Fees” Coauthored with HyeSeung Grace Lee and Heibatollah Sami, Accounting Horizons, vol. 29(1), 83-113, March 2015
- “Can Strong Boards and Trading Their Own Firm’s Stock Help CEOs Make Better Decisions? Evidence from Acquisitions by Overconfident CEOs” Coauthored with Adam Kolasinski, Journal of Financial and Quantitative Analysis, vol. 48(4), 1173-1206, August 2013
- “Regulation FD, Accounting Restatements and Transient Institutional Investors’ Trading Behavior” Coauthored with Suresh Radhakrishnan, Haeyoung Shin, and Jin Zhang, Journal of Accounting and Public Policy, vol. 30(4), 298-326, July-August 2011
- “Behavioral Theories and the Pricing of IPOs’ Discretionary Current Accruals” Review of Quantitative Finance and Accounting, vol. 37(1), 87-104, July 2011
- “Are Corporate Managers Savvy about Their Stock Price? Evidence from Insider Trading after Earnings Announcements” Coauthored with Adam Kolasinski, Journal of Accounting and Public Policy, vol. 29(1), 27-44, January-February 2010
- “The Effect of Disclosures by Management, Analysts, and Business Press on Cost of Capital, Return Volatility, and Analyst Forecasts: A Study Using Content Analysis” Coauthored with S.P. Kothari and James Short, The Accounting Review, vol. 84(5), 1639-1670, September 2009
- “Characteristics of a Firm’s Information Environment and the Information Asymmetry between Insiders and Outsiders” Coauthored with Richard Frankel, Journal of Accounting and Economics, vol. 37(2), 229-259, June 2004
Dr. Li serve as ad-hoc referees for various accounting and finance journals in the academic community. He has also served as dissertation committee members for PhD students. At University of Hong Kong, Dr. Li is member of IT committee in the School of Business and he frequently contributes to the interviewing services for the admission of undergraduate and graduate students.