The 6th CEIBS Finance and Accounting Symposium, with the "Corporate Finance, Governance, and Fintech" theme, was held on July 11, 2023 at the CEIBS Shanghai campus. The event brought together more than 80 scholars from top universities in the US, Europe, and Asia to discuss current issues at the intersection of economics, finance, politics, and accounting.

Organised by the Department of Finance and Accounting at CEIBS, the symposium aims to build a platform for finance and accounting scholars from around the world to share their latest research and exchange new ideas. It also provides an opportunity to showcase CEIBS to the academic community worldwide. The symposium received more than 140 submissions and eight papers were selected for the final program this year. Professor Zhiguo He from University of Chicago was the keynote speaker, who presented the paper titled “What Gets Measured Gets Managed: Investment and the Cost of Capital” during the symposium.

In his welcome address, CEIBS Vice President and Co-Dean Dr. Weijiong Zhang noted how the symposium echoes the school’s mission of “China Depth, Global Breadth.” Having distinguished scholars from around the world come together to discuss challenging issues of global importance and China relevance is indeed consistent with the mission statement of CEIBS.

In the day-long symposium, each paper was allocated 20 minutes for presentation, 15 minutes for discussion, and 10 minutes for Q&A. The following are presentation summaries from the symposium.

Keynote Speech: What Gets Measured Gets Managed: Investment and the Cost of Capita

Presenter: Zhiguo He, University of Chicago

We study the impact of government-led incentive systems by examining a staggered reform in the Chinese state-owned enterprise (SOE) performance evaluation policy. To improve capital allocative efficiency, starting in 2010, regulators switched from using return on equity (ROE) to economic value added (EVA). However, this EVA policy takes a one-size-fits-all approach by stipulating a fixed cost of capital for virtually all SOEs, neglecting the potential heterogeneity of firm-specific costs of capital. We show that SOEs responded to the evaluation reform by altering their investment decisions, particularly when the actual borrowing rate deviated further from the stipulated cost of capital. Besides providing an estimate of the cost of capital’s impact on investment, our paper offers causal evidence that incentive schemes affect real investment and sheds new light on economic reform challenges in China.

When private equity comes to town: The local economic consequences of rising healthcare costs

Presenter: Cyrus Aghamolla, University of Minnesota

Discussant: Ai He, University of South Carolina

We examine the effect of increased healthcare costs on local economic conditions. We use private equity (PE) buyouts of U.S. hospital chains as a shock to the healthcare costs faced by firms in the affected areas. Our primary identification strategy consists of the PE acquisition of a large-scale U.S. hospital chain, with hospitals dispersed across various communities in the U.S. We supplement this strategy with broader evidence including all PE buyouts of hospitals over a longer sample period. We provide evidence that PE buyouts of hospital chains result in higher healthcare insurance premiums paid by firms, and such rises in premiums lead to higher business bankruptcies, an increase in business loan volume, slower employment and establishment growth, and lower wages. We additionally provide evidence that increases in healthcare costs result in firms being more vulnerable to the financial crisis, suggesting that the negative economic consequences of rising healthcare costs are due to weakened firm balance sheets which cause firms to be more susceptible to negative shocks. 

Power Grab: Hedge Fund Activists and Short Sellers

Presenter: Tao Li, University of Florida

Discussants: Zhongjin Lu, University of Georgia

We study events in which activist hedge funds and short sellers target the same stock using unique European data on activism and mandatory disclosures of large short positions. The presence of large short sellers is associated with a 22.6% increase in the probability of becoming an activist target. Such presence also increases campaigns’ success probability and profitability. Importantly, activists employ fewer hostile tactics, launch shorter campaigns, and achieve better post-activism corporate policies, consistent with firms becoming more receptive to activists’ demands after facing pressure from short sellers. Hedge fund activism is also associated with a reduction in disclosed short positions. 

What Do Questions Reveal? Skill Acquisition, Detection, and Recognition in the Cap 

Presenter: Ling Cen, The Chinese University of Hong Kong

Discussant: Roger Loh, Singapore Management University
We construct an ex ante topic-specific skill measure based on the frequency of topic specific questions that analysts raised in past earnings conference calls. In a supply chain information setting, we show that analysts with supply-chain-specific skill achieve a greater improvement in forecast accuracy relative to their peers when the firms experience firm-specific or market-wide supply-chain shocks. Analysts acquire skills through cross brokerage learning and within-brokerage coaching. While brokerage firms do not assign tasks according to topic-specific skills, evidence based on the market reactions to recommendation updates and the information diffusion speed along the supply chain suggests that investors do recognize these skills. Overall, we provide a generalizable method that penetrates the black box of information processing and study the skill acquisition, detection, and diffusion in the capital market. 

Understanding Rationality and Disagreement in House Price Expectations

Presenter: Renxuan Wang, CEIBS

Discussant: Hongye Guo, University of Hong Kong

Professional house price forecast data are consistent with a rational model where agents must learn about the parameters of the house price growth process and the underlying state of the housing market. Slow learning can generate forecast bias, a response of forecasts to lagged realizations, sluggish response of forecasts to contemporaneous realizations, and a response of forecast errors to forecast revisions. Using panel data for a cross-section of forecasters and a term structure of forecasts are important for generating these results.

Trust in Finance and Consumer Fintech Adoption

Presenter: Vesa Pursiainen, University of St.Gallen and Swiss Finance Institute

Discussant: Keer Yang, University of California, Davis

We study the role of trust in traditional finance in the consumer adoption of various fintech products, including cryptocurrencies, peer-to-peer lending, other crowdfunding, robo advisors, and alternative payment solutions. Using a representative survey of Dutch households, an online lab experiment, and an experiment on an investment website, we find no consistent evidence that trust in finance affects fintech adoption in any product category, though we find weak evidence showing that trust in finance positively affects interest in alternative payment apps. Our results suggest that consumers consider fintech products to be distinct from traditional financial products.

Financial Inclusion via FinTech: From Digital Payments to Platform Investments

Presenter: Xiaomeng Lu, Fanhai International School of Finance at Fudan University

Discussant: Yu-Jane Liu, Peking University

We study household finance in the age of FinTech, where consumption, payments, and investments take place via all-in-one super-apps. We hypothesize that FinTech adoption can improve household risk-taking by breaking down the traditional physical and psychological barriers and enhance financial inclusion. Taking advantage of an individual-level FinTech dataset, we find that higher FinTech adoption, both at the individual-level and the county-level instrumented by distance-from-Hangzhou, results in higher participation and more risk-taking in mutual-fund investments. Moreover, individuals who are otherwise more constrained, those with higher risk tolerance or living in under-banked counties, stand to benefit more from the advent of FinTech.

Shadow Banking: An Expedient Solution to Government Short-Termism

Presenter: Jinfan Zhang, The Chinese University of Hong Kong, Shenzhen

Discussant: Liyan Yang, University of Toronto

We develop a banking model to explain the remarkable growth of China’s shadow banking since the global financial crisis. In the presence of local government interventions for low-quality projects due to short-termism, a policy combination of tightening formal banking and loosening shadow banking can reduce inefficiency given the information asymmetry between banks and regulators. This is because the higher funding liquidity risk of shadow banking incentivizes banks to be more disciplined about the quality of projects. We find consistent empirical evidence that when on-balance-sheet financing was constrained by regulators, banks shifted high-quality projects into shadow banking and rejected low-quality ones.

Kamikazes in Public Procurements

Presenter: Dimas Mateus Fazio, National University of Singapore

Discussant: Jian Sun, Singapore Management University

Using granular auction data on 15 million item purchases in Brazilian public procurements between 2005-2021, we document a widespread pattern that the lowest bidder (“kamikaze”) does not satisfy required formalities after the auction is concluded, which allows the second-lowest bid to win the auction. Such a pattern can be observed in up to 15-20% of procurement auctions and results in 15-17% higher procurement prices as compared to similar auctions procuring the same product or service items, organized by the same government institutions, and even having the same winning firm. Kamikaze firms are smaller, younger, and tend to be co-owned by the same ultimate owner as the winning firm. Using observed kamikaze behaviour as a marker, we aim to measure how higher procured product and services prices contribute to real outcomes by public service providers by reducing the budget available for sourcing other items and the quality of the procured items. Taking the case of hospital mortality data, we see an increased number of deaths in the four quarters after an increased fraction of procurement auctions involving kamikazes. Similarly, we observe an increase in the road accidents following the road service contracts involving kamikaze firms.

Early Idea Sessions on Jul.12

This year, as a part of the symposium, the Finance/Accounting Department also organized some early idea sessions on the second day on July 12. Our symposium’s presenters, discussants and CEIBS faculty participated in these sessions to share their early-stage work. 

Sheng Huang from CEIBS, the Chair of the symposium organizing committee conducted a talk entitled “Environmental consciousness and trading”. Liyan Yang from University of Toronto gave a talk on “Personalized pricing, network Effects, and corporate social responsibility.” Ai He from University of South Carolina presented on “Propagation of climate disasters through ownership networks and its impact on corporate ESG policies.” Keer Yang from University of California, Davis gave a presentation on “Why do corporations invest in DEI? Evidence from the George Floyd murder.” Hongye Guo from University of Hong Kong gave a talk on “Earnings extrapolation and predictable stock market returns.” Finally, Hongyu Shan from CEIBS conducted a speech on “Trade and consumption”.