Xiaoyang Li

Productivity, restructuring, and the gains from takeovers.

This paper investigates how takeovers create value. Using plant-level data, I show that acquirers increase targets’ productivity through more efficient use of capital and labor. Acquirers reduce capital expenditures, wages, and employment in target plants, though output is unchanged. Acquirers improve targets’ investment efficiency through reallocating capital to industries with better investment opportunities. Moreover, changes in productivity help explain the merging firms’ announcement returns. The combined announcement returns are driven by improvements in target’s productivity. Targets with greater productivity improvements receive higher premiums. These results provide some first empirical evidence on the relation between productivity and stock returns in takeovers.

Career Concerns and the Busy Life of the Young CEO

We examine how real investment decisions of younger and older Chief Executive Officers (CEOs) are affected by their career concerns. Relative to their older counterparts, younger CEOs are more likely to enter new lines of business and exit from existing ones. They prefer growth through acquisitions and undertake bolder investment activities. This busier investment style of the younger CEOs appears not to hurt firm efficiency. Selection of younger CEOs by restructuring firms, omitted CEO characteristics, and tenure effects cannot explain the age-investment relation. Additional results also shed light on how CEO favouritism distorts capital allocation within firms.

Does Brain Drain Lead to Institutional Gain

A country’s endowment of human capital can affect its institutions through various channels. This raises the possibility that skilled emigration can leave its mark on a country’s institutional development. We combine recent datasets on emigrant stocks and institutional quality to explore the impacts of mobile human capital on home country’s institutional quality. Using geography-based instruments for emigrant human capital, we find that larger emigrant human capital stocks (as a share of domestic population) are associated with higher quality of political institutions, but lower quality of economics institutions.

Offshoring Pollution While Offshoring Production

We examine the role of firm strategy in the global effort to combat pollution. We find that U.S. plants release less toxic emissions when their parent firm imports more from low-wage countries (LWCs). Consistent with the Pollution Haven Hypothesis, goods imported by U.S. firms from LWCs are in more pollution-intensive industries. U.S. plants shift production to less pollution-intensive industries, produce less waste, and spend less on pollution abatement when their parent imports more from LWCs. The negative impact of LWC imports on emissions is stronger for U.S. plants located in counties with greater institutional pressure for environmental performance, but weaker for more-capable U.S. plants and firms. These results highlight the role of local institutions and firm capability in explaining firms’ offshoring and environmental strategy.

Imitating to export

We document the existence of Chinese imitation of foreign firms on a large scale. Chinas export processing zones (EPZs) attract foreign companies to set up export processing operations. Chinese firms quickly imitate these companies in both export and import patterns. Exports of the products shipped from EPZs increase throughout the province, with the largest gains in the city containing the EPZ, and the next largest in the cities adjacent to the EPZ. Chinese companies also import the same equipment imported by companies in EPZs, suggesting that they imitate foreign technology. Furthermore, we find that firms that imitate EPZs leapfrog non-imitating firms in productivity. We conclude that a key ingredient of Chinas success in trade has been its ability to attract foreign firms and subsequently imitate them.

Board Diversity, Inventor Collaboration, and Corporate Innovation

Many firms often tout their commitment to diversity, sometimes appointing racial minorities to their board of directors. We provide empirical evidence on the positive effect of board diversity on corporate innovation. We hypothesize that an important channel through which firms with diverse boards achieve greater innovation success is to create an inclusive environment that attracts key human capital and fosters collaboration. We find that firms with more ethnically diverse boards employ more active and collaborative inventors, attract more minority inventors, and promote greater collaboration among inventors with different ethnic backgrounds. These outcomes in turn lead to corporate innovation success.

Origin Matters: The Differential Impact of Import Competition on Innovation?

We examine the impact of import competition on firms’ innovation input and output. We conjecture that U.S. firms view import competition from high-wage countries (HWCs) as “neck-and-neck�? competition and will respond by intensifying innovation. In contrast, U.S. firms will reduce innovation in response to import competition from low-wage countries (LWCs), because such competition does not always increase the potential benefits from innovation. Our empirical results are supportive. We find that, when confronting HWC import competition, U.S. firms increase R&D spending while intensifying and improving innovation output (file more patents, receive more citations to their patents, and produce more breakthrough patents). Moreover, U.S. firms closest to the technological frontier — largest firms, firms with the largest stocks of knowledge, and most profitable firms — increase and improve their innovation the most in response to HWC competition. These results shed light on the relationship between product market competition and innovation, and point to the origin of import competition as a determent of innovation decisions made by U.S. companies.

Convertible Bond Arbitrage, Happy Meals, and Insider Trading

Consistent with hedge funds trading on privileged information during the wall-crossing period, we document negative abnormal returns and abnormally high short selling in the trading days just prior to the private placements of U.S. convertible bonds, no pre-placement negative abnormal returns and less pre-placement abnormal short selling volume for convert issuers who engage in related stock buybacks, and more pre-placement short selling for convert issues subject to more intense post-issue short selling. Alternative explanations for our results are rejected because pre-placement anomalies are related to specific terms of the converts and related buybacks. Short interest disclosure needs to be more transparent and Regulation Fair Disclosure better enforced.