May 23, 2019. Shanghai – The "Political Economy of Finance" was the theme of the 5^th CEIBS Finance and Accounting Symposium held today at the CEIBS Shanghai campus. The event brought together more than 70 scholars from the US and Asia to discuss current issues at the intersection of 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 globe to share their latest research findings and exchange ideas. It also provides an opportunity to showcase CEIBS to the academic community worldwide. More than 100 manuscripts were submitted to the symposium and six final papers were selected for discussion. Altogether 12 speakers and discussants were invited to participate from renowned business schools in the US, Europe, and Asia.

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 globe gather to discuss challenging issues of global importance and China relevance is indeed to echo the mission statement of CEIBS.

The day-long symposium was divided into six session, each including a 35-minute presentation, a 10-minute discussion, and a 10-minute Q&A period. The following are presentation summaries from the symposium.

Guilty by Association: The Effects of Terrorism on Country Reputation and Corporate Activity

Presenter: Alper Darendeli, Nanyang Technological University

Discussant: Viktar Fedaseyeu, Università Bocconi

By exploiting variation in nationalities of foreign victims in local terror attacks, Alper Darendeli and Mehmet Canayaz identify distortionary effects of terrorism on country reputations and corporate sales to foreign countries. In doing so, they reveal that the effects of terrorism are economically and statistically significant, persistent, and more pronounced after attacks with casualties and high levels of foreign media coverage. “Guilty-by-association” firms, i.e. local country firms whose names resemble names from their countries of origin, are noticeably affected through greater drops in foreign sales. Distortions driven by terrorist activities are associated with reductions in overall firm value, asset growth, and profitability.

Depositors Disciplining Banks: The Impact of Scandals

Presenter: Mikael Homanen, University of London

Discussants: Zigan Wang, University of Hong Kong / Travers Barclay Child, CEIBS

Do depositors react to negative non-financial information about their banks? By using branch level data for the United States, Mikael Homanen shows that banks that financed the highly controversial Dakota Access Pipeline experienced significant decreases in deposit growth, especially in branches located closest to the pipeline. These effects were greater for branches located in environmentally or socially conscious counties, and data suggests that savings banks were among those most affected by this depositor movement. Using a global hand-collected dataset on tax evasion, corruption, and environmental scandals related to banks, Homanen shows that negative deposit growth as a reaction to scandals is a widespread phenomenon.

Punish One, Teach A Hundred: The Sobering Effect of Punishment on the Unpunished

Presenter: Jin Xie, Chinese University of Hong Kong

Discussant: Heng Yue, Singapore Management University

Direct experience of a peer's punishment might make salient the probability and consequences of facing punishment and hence induce a change in the behaviour of non-punished peers. Jin Xie has tested this mechanism in a setting, China, in which he observed the reactions to the same peer's punishment by listed firms with different incentives to react, namely state-owned enterprises (SOEs) and non-SOEs. After observing peers punished for wrongdoing in loan guarantees to related parties, SOEs – which are less disciplined by traditional governance mechanisms than non-SOEs – cut their loan guarantees. SOEs whose CEOs have stronger career concerns react more than other SOEs to the same punishment events, a result that systematic differences between SOEs and non-SOEs cannot drive. SOEs react more to more salient events even if information about all events is publicly available. After witnessing peers' punishments, SOEs also increased their board independence, reduced inefficient investment, increased total factor productivity, and experienced positive cumulative abnormal returns around those peers' punishments. At the same time, Jin Xie detected no shifting to more opaque forms of tunnelling. Strategic punishments could be a cost-effective governance mechanism when other forms of governance are ineffective.

Organized Crime and Firms: Evidence from Italy

Presenter: Stefan Zeume, University of Michigan

Discussant: Mounu Prem, Universidad del Rosario

Stefan Zeume and Pablo Slutzky employed staggered municipal-level anti-mafia enforcement actions in Italy between 1995 and 2015 to study the effect of organised crime on firms. At the municipal level, the researchers found that, as the influence of organised crime weakens, competition among firms, innovation activity, and competition for public procurement contracts increases. At the firm level, firms that do not exit in response to anti-mafia enforcement actions shrink in size and experience a decline in employee productivity, as well as a slight reduction in profitability. These results are more pronounced for firms that are treated by multiple anti-mafia enforcement actions, firms founded during the height of mafia activity, and firms that operate in the non-tradable sector. Our findings are consistent with accounts of organised crime members acting as cartel enforcers and using legitimate firms to launder money.

How Do Individual Politicians Affect Privatization? Evidence from China

Presenter: Kunru Zou, Nanyang Technological University [@Carol – Can you confirm this was the presenter? I searched online and this person is not the author of the article]

Discussant: Orkun Saka, University of Sussex

In researching this paper, Hong Ru and Kunru Zou investigated how local politicians affect privatisation implementations and the outcomes in China. Specifically, they found that older local politicians with higher education and working experience in state-owned enterprises (SOEs) tend to do more privatisations. Overall, privatisations increased firm efficiency and productivity which help local politicians’ career advancements via GDP competition in China. This efficiency gain was less pronounced when local politicians had more political capital that increased their promotion chances. These powerful local politicians deviated from GDP maximisation and had weaker incentives to maximise the efficiency gain of privatisations. Together, the researchers employed the regression discontinuity design by using the compulsory retirement age of members of the Central Committee of the Communist Party of China as exogenous shocks to their connected local politicians’ political power.

Friends at WSJ

Presenter: Guosong Xu, Otto Beisheim School of Management

Discussant: Mario Schabus, University of Melbourne

In this paper, Guosong Xu studied the effect of firm–journalist connections on media slants and stock returns, using a dataset on various firms’ connections with Wall Street Journal (WSJ) reporters. What he discovered is it, when corporate events are covered by connected reporters, news sentiment becomes markedly more favorable, leading to better short-term market reactions and long-term price corrections. For the purpose of establishing a causal relation, Xu instrumented the connected coverage with reporter turnover and found similar results. Furthermore, using Rupert Murdoch’s acquisition of the WSJ as an exogenous shock to journalistic independence, he showed that firms connected to Murdoch received better coverage and higher returns after the ownership change.

Political Economy of Finance Workshop

This year many discussants travelled from far away to attend the symposium. Hence, in addition to the workshop, the Department of Finance and Accounting also organised a workshop on May 24 to provide an opportunity for participants to present their work. In this way, CEIBS was able to leverage more research interaction from the annual conference gathering.

During the workshop, Viktar Fedaseyeu from Università Bocconi presented a paper entitled “Why Do Corporate PACs Give so Little Money to Politicians?” Mounu Prem from Universidad del Rosario gave a talk on “Corruption and Firms: Evidence from Randomized Audits in Brazil.” Orkun Saka from the University of Sussex presented on “Lending Cycles and Real Outcomes: Costs of Political Misalignment.” Finally, Mario Schabus from the University of Melbourne gave a presentation on “Presidential Power and Shareholder Wealth.”