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Wang Cong: Applying Research to our Everyday Lives

Volume 2, 2017

By Janine Coughlin

Academic researchers have a lot in common with entrepreneurs – both are looking to solve problems which affect our daily lives. For Professor of Finance Wang Cong, the challenges of corporate governance and mergers and acquisitions provide plenty of inspiration.

“There are many mergers and acquisitions announced in the media and these do impact the lives of ordinary people. If you work for the company being acquired in the transaction, you care about whether it will lead to employee lay-offs because that will impact your job security,” he says, when asked to elaborate on his research interests. “Also, if you hold shares in the acquiring company, you will care whether this company can make acquisitions that increase its value so that the stock price of your shares will increase, creating value for you. These sorts of issues are quite interesting and important topics to research.”

The research support that CEIBS provides to faculty was part of what attracted him to leave a tenured position at Chinese University of Hong Kong (CUHK), where he was Associate Professor of Finance and an Outstanding Fellow of the Faculty of Business Administration. He moved to Shanghai in September 2016 to join CEIBS but his first visit to the school was in 2015, to participate in a Finance Symposium. “I spoke with Dean Ding Yuan and many other Finance Department colleagues,” he recalls. “I really liked them, and I also liked the environment here, so I decided to join.” His wife and son enjoy living in China’s bustling economic capital and it’s just a short trip back home for Professor Wang to visit his parents. 

He grew up in Shandong Province, and did his undergraduate degree at Peking University’s Guanghua School of Management. He moved to Singapore to do a Master’s Degree in Economics at Nanyang Technological University, and then it was on to the US for a PhD in Finance at Vanderbilt University. However after five years in Tennessee, his wife wanted a more lively, urban lifestyle, so he took the faculty position at CUHK. They spent nine years there before Professor Wang made the move to CEIBS, joining distinguished faculty such as his academic idol, Baosteel Chair Professor of Economics Wu Jinglian. “When I was still an undergraduate I read his books on China’s economic reform. I feel quite honoured being a colleague of Professor Wu,” he says.

Professor Wang is well on his way to building his own impressive body of high impact research. While at CUHK he received that institution’s 2010 Young Researcher Award, and a paper he wrote won the 2015 Emerald Citations of Excellence Award. Two of his papers are among the top 10 most-cited articles published by the Journal of Finance in 2007 and 2009 respectively; the publication is among the 50 journals that the Financial Times uses when compiling its research rank for business schools.

Another FT50 journal, the Review of Financial Studies, recently published a paper Prof Wang co-authored that explores a timely issue – the implications of the strategies that multinational companies use to shelter their foreign earnings from taxes.

“Multinational corporations in the US hold trillions of dollars of cash in foreign countries. This is because for their foreign earnings, they only need to pay taxes to the foreign government at the foreign tax rate,” Professor Wang says, explaining his research. “If they want to repatriate this cash back to the US then they have to pay the US government at the US corporate tax rate, which is normally much higher.”

While this strategy may save a company on taxes, Professor Wang’s research shows this comes at a cost. “In my paper we found that shareholders place a huge discount on the foreign cash companies hold on their balance sheets,” he says.

There are several reasons for this, the first being the tax bill that will be due down the road if the money is eventually repatriated. The second is that cash parked abroad won’t be used for domestic investment, which means the company may have to rely on external capital markets to raise these monies, and will incur financing costs. Third, it may lead to inefficient foreign over-investment.

“One channel that these MNCs spend their cash on is large acquisitions,” he explains. “We have seen cases like Microsoft paying more than US$8 billion for Skype, which is based in Luxembourg, a tax haven country in Europe. Microsoft also paid more than US$7 billion to acquire Nokia, another European company. Three years later Microsoft had to sell Nokia for only US$350 million, so essentially over three years it lost over US$7 billion. This is an example of the so-called over-investment problem.”

The significance of corporate tax strategy has also been making the news in recent times. First, the European Union ordered Apple to pay US$14 billion in back taxes plus interest on earnings it had been stashing in Ireland, and it accused the Irish government of providing illegal state aid to the iPhone maker by allowing it to shelter its money from tax collectors there. Both Apple and the Irish government are disputing the ruling. Then, in the wake of the Brexit vote, German Chancellor Angela Merkel said that the EU will need to relook at its corporate tax policies. In addition US President Trump made promises on the campaign trail about changing US tax regulations to encourage multinationals to move their foreign earnings back to the US. 

Professor Wang also hopes to explore some big picture areas with his research, for example whether state-owned enterprises can make value-increasing acquisitions for their shareholders. “Ten years from now I will probably also spend some of my time on applied research which I can use directly in classroom teaching and to provide some insight to practitioners,” he says.

Were he an entrepreneur – or suddenly developed a super power, Professor Wang would still focus his efforts on solving important everyday issues. “I think if I had a super power, I would like to invent a technology that can improve the conversion efficiency of solar panels,” he says. “Air pollution is really a dire issue that we are facing in our everyday lives. Sometimes I have to ask my son to wear a mask when he’s going to school, so if there is some creative technology that can improve the current conversion efficiency of solar power, then I think in the future maybe we can solely rely on solar power instead of fossil fuel energies.”

 

Fast Facts:

Research & Teaching Interests: Corporate Finance, Corporate Governance, Mergers & Acquisitions, Executive Compensation, Capital Raising and Financing Strategies

Tip for Work/Life Balance: “I learned tai chi when I was an undergraduate student at Peking University. Since then I have been practicing it 15 minutes per day. It is very helpful to calm your mind and improve your health.”