Publications or Accepted Papers
Tariff Uncertainty and Cost of Debt: Evidence from United States-China Permanent Normal Trade Relations (with Huasheng Gao)
Journal of Banking and Finance, (forthcoming)
What is it about? We examine the causal effect of tariff uncertainty on firms’ cost of debt. Our tests exploit a unique trade policy that reduces tariff uncertainty on Chinese imports without affecting the actual tariff rate, United States (U.S.)–China permanent normal trade relations (PNTR). We reveal a significant drop in the loan spreads for firms affected by PNTR relative to other firms. We further demonstrate that such effects occur through the channel of increasing firms’ performance predictability. Overall, by examining a clean measure of uncertainty from the tariff source, we provide evidence that reducing uncertainty has a causal effect on reducing the cost of debt.
Tariff Uncertainty and Firm Innovation: Evidence from the US-China Permanent Normal Trade Relation (with Tao Chen and Huasheng Gao)
Journal of Empirical Finance, 2021
What is it about? We examine the effect of the tariff uncertainty associated with Chinese imports on U.S. firm innovation. Our test exploits the U.S. conferral of Permanent Normal Trade Relations (PNTR) on China—a policy that reduces the uncertainty of future tariff increases for Chinese goods. We find a significant increase in the number of patents and patent citations for U.S. firms affected by PNTR relative to other firms. This result is stronger for firms with more irreversible investments and for firms that experience a greater increase in Chinese goods following PNTR. Overall, our evidence is consistent with the view that lowering the tariff uncertainty of Chinese imports boosts the attractiveness for U.S. firms to make long-term irreversible investment (such as technological innovation) and thus induces U.S. firms to innovate more.
Is it Who You Know or What You Know? Evidence from IPO Allocations and Mutual Fund Performance (with Chuan-Yang Hwang and Sheridan Titman)
Journal of Financial and Quantitative Analysis, 2018
What is it about? Mutual fund managers with degrees from elite universities tend to outperform their counterparts from less elite universities. We show that the better performance of elite graduates is generated from their better connections with underwriters that facilitate allocations to underpriced initial public offerings (IPOs). Indeed, we find that the funds outperform only in months when they are connected to underwriters issuing IPOs. A strategy of buying mutual funds in months when they are connected to underwriters scheduled to issue IPOs generates significant abnormal returns, as high as 4.08% per annum in hot markets.
Working papers
Second-tier Stock Exchanges and Growth of Entrepreneurship (with Po-Hsuan Hsu and Huasheng Gao)
Management Science, (forthcoming)
What is it about? We examine the role of second-tier stock exchanges in an entrepreneurial context from a global perspective. We construct a country-industry-year panel of global VC-invested startups, and find a significant increase in entrepreneurial activities following the launch of such markets. A causal interpretation is supported by additional tests for staggered difference-in-differences regressions, instrumental variable regressions based on the adoption of electronic trading in main stock exchanges, and interacted regressions based on industry-specific dependence on second-tier stock exchanges. We propose a VC exit mechanism that receives empirical support: the launch of second-tier stock exchanges positively predicts (i) VC investment in startups, (ii) VCs’ valuation of startups, (iii) startups’ patenting records, (iv) startups’ IPO likelihood, and (v) startups’ IPO valuation. Moreover, more startups were created in countries with more VC investment after the launch of such markets. Finally, we find that the effect of second-tier stock exchanges on entrepreneurial ventures increases with financial resources, human capital, and intellectual property protection.