Thought Leadership

Many emerging economies employ preferential credit policies that target selected sectors. This paper quantifies the implications of such policies for aggregate productivity and welfare. Using Chinese firm-level data from 2009–2020, we first document that sectors with higher markups receive larger credit subsidies and exhibit higher revenue-based productivity. Motivated by these facts, we develop a multi-sector quantitative model with endogenously determined markups and calibrate it to match the distribution of sales both within and across sectors. We find that preferential credit subsidies raise aggregate productivity and welfare by reallocating market shares toward high-markup sectors. These gains persist in an extended framework with endogenous firm entry.

We examine whether and how common ownership affects Environmental, Social, and Governance (ESG) ratings—an important research question given the increasing use of these ratings in investment decisions and corporate evaluations. We find that companies with major shareholders in common with the rating agency (“sister firms”) tend to receive higher ESG ratings. When a company becomes a sister firm through a change in the rating agency's ownership structure, its rating from that agency is subsequently upgraded, whereas its ESG ratings from other agencies remain unchanged. Sister firms exhibit greater rating disagreements across agencies than other firms. The higher ESG ratings for sister firms are partly attributable to the transfer of immaterial positive ESG information through common owners. The common ownership effect is more pronounced when the owner can exert a greater influence on the rating agency. Moreover, sister firms with initially elevated ratings demonstrate poorer future ESG performance. Overall, our findings suggest that owners can affect ESG ratings of their portfolio companies in a way consistent with their influence and interest.

Using data on Internet news reading, we measure fund-level attention to both aggregate and firm-specific news and relate it to fund portfolio allocation decisions. In the time series, we find that funds shift attention toward macroeconomic news during periods of high aggregate volatility. Those funds that exhibit stronger attention-reallocation patterns earn higher future returns. In the cross-section of fund portfolios, fund attention is positively related to stock holdings. Furthermore, fund attention to a stock increases the value-add of that position to the fund's performance. This relationship is stronger using fund attention to more value-relevant news articles.