Zhenyu Wu

Second‐Order Gender Effects: The Case of U.S. Small Business Borrowing Cost

Gender–based differential treatment of business borrowers has been illegal for decades now. Therefore, any remaining gender effect is likely to be more subtle than before and second order in nature. Using 1,577 small businesses from the 2003 National Survey of Small Business Finances by the Federal Reserve Board, resolving the gender assignment problem, and isolating the supply effects, our tests detected a second–order gender effect in U.S. small business borrowing cost. Specifically, lenders charge female sole proprietorships an average of 73 basis points higher than male sole proprietorships. The methodology also ameliorates an interpretation problem common to first–order gender effects.

Effect of foreign ownership on cost of borrowing: Evidence from small and medium-sized enterprises in China

This article draws upon a sample of more than 27,000 Chinese small and medium-sized enterprises (SMEs) to explore whether and how foreign equity investment in local SMEs affects the cost of debt. The results show that foreign ownership lowers the cost of borrowing for Chinese SMEs, and that this effect is stronger in more developed provinces. These findings contribute to evidence regarding the halo effect of foreign direct investment in emerging markets. This study also expands pecking order theory by demonstrating the signalling effect of equity structure characteristics on debt financing.

Investor perceptions of the benefits of political connections: Evidence from China's A-share premiums

Purpose - – The purpose of this paper is to investigate how foreign and domestic investors differ in their beliefs about the relative merits of a firms political connections. Design/methodology/approach - – These differences are employed to explain cross-sectional variation in the previously documented premium in A-share prices relative to otherwise equivalent foreign currency denominated B-shares for Chinese firms. Findings - – Chinese domestic individual investors were excluded from owning B-shares of Chinese firms prior to February 20, 2001. The authors find that firms with more political connections have higher premiums and a smaller reduction in premiums associated with this event. Research limitations/implications - – This is consistent with domestic block holders deriving additional benefits from politically connected firms. Practical implications - – The findings also have important policy implications by showing that government can have a strong effect on the economy even without applying macro-policy tools. Social implications - – Government ownership in listed companies can result in discrepancies among classes of investors with respect to their valuations. Furthermore, the prohibition of short sales prevents arbitrage from correcting this bias, and eventually the role of the market in allocating resources efficiently is undermined. Originality/value - – The authors investigate the role of political connections as implied by the proportion of state ownership in explaining the A-share premium. Unlike previous studies that associate state ownership with political risk, the paper relates state ownership to political connections that are particularly beneficial to domestic large block shareholders. This interpretation is consistent with the findings and with previous literature on state ownership and political connections of Chinese firms.

Family Control, International Accounting Standards, and Access to Foreign Banks: Evidence from International Entrepreneurial Firms

This article aims to understand if a change in accounting standards offers new avenues for helping entrepreneurial firms, especially those family-controlled ones, to obtain debt financing from foreign banks. We find that amid the global wave of adopting International Accounting Standards (IAS), family-controlled firms tend not to voluntarily switch from local generally accepted accounting principles to IAS. After self-selection issues are taken into account, furthermore, entrepreneurial firms adopting IAS experience less difficulty accessing loans from international banks. However, IAS adoption differentially influences private firms, family owned versus nonfamily controlled, in terms of their access to debt capital.

A separate monitoring organ and disclosure of firm-specific information

As the economy is recovering from the recent financial crisis, we explore the appropriateness of a corporate monitoring organ, which is a component separate from the board of directors, to enhance firm-specific information disclosure. Findings of this study, rooted in the evidence from Chinas stock markets, confirm that having a separate and effective monitoring organ results in a higher level of idiosyncratic risk, as long as the legal environment is sufficiently strong and the functionality of this separate monitoring organ is clearly defined. Effects of regulatory changes and ownership characteristics are addressed to help better understand the corporate governance–idiosyncratic risk relationship. Moreover, this study sheds light on timely global issues about information transparency and supervision, the lack of which becomes one of the major causes of the ongoing financial crisis, and presents an important challenge before corporate governance.

Family involvement and R&D expenses in the context of weak property rights protection: an examination of non-state-owned listed companies in China

ABSTRACT The impact of family involvement on firm behaviour is an issue of global interest, yet paradoxically few studies examine the behaviour of family firms in the unique socio-political environment of China. We investigate the cross-institutional generalizability of the behavioural agency model, emphasizing the non-economic goals of controlling families as a driver of unique yet predictable behaviours in Chinese family firms and examine the relationship between family involvement and the R&D expenses reported by these firms. We propose that in a context of weak property rights protection such as China’s, the opportunity for family owners to attain transgenerational control is subject to the additional risk of state predation. We consequently expect economic goals to prevail over family-centred non-economic goals in Chinese family firms and hypothesize that their reported R&D expenses increase with family involvement due to severe Type II agency problems. Moreover, we examine the effect of positive and negative performance feedback on this relationship. Longitudinal data from non-state-owned listed companies in China provide overall support for these contentions. We discuss the theoretical and practical implications of these findings.

When should venture capitalists exit their investee companies

Purpose - – Exit strategies are critical for external private equity holders, such as venture capitalists and business angels, to receive investment returns successfully. The paper models the exit decision as a fixed date with the option to exit early, and develop an approach to help private equity holders determine an optimal early exit region based on a target equity value and the time remaining. Design/methodology/approach - – The paper sets up a continuous time model to derive analytical solutions and apply simulations to numerical examples in this study. Findings - – By numerically analyzing the nature of the solution the paper illustrates that a higher return drift of the investee company, a lower return volatility of the investee company, and a higher target return of the private equity holder results a smaller early exit region. Originality/value - – This study helps determine the optimal time of stopping investments, and provides venture capitalists with a usable way to make exit decisions.

Commentary: A Value Perspective of Family Firms:

This commentary extends Hillier, Martínez, Patel, Pindado, and Requejo (2018) by placing their insights within a wider context of the debate between the agency theory and stewardship theory. To reconcile the conflicts between the two theories, we propose a family-value perspective to incorporate the intrinsic heterogeneity of family firms. We highlight how different family values may lead to different strategic behavior and how various theoretical perspectives may be best used to describe the behavior of family firms with certain specific values.

Family Business Development in Mainland China: From 1872 to 1949

Abstract This study reviews family business in mainland China from 1872 to 1949 and provides evidence of its early development and its origins in 1872 when the first modern manufacturing firm was founded. We analyse the social, economic, and political environment in which family firms in mainland China were embedded to improve our understanding of how this unique organisational form was established and developed. Our analyses cover the late Qing Dynasty and the period from 1912 to 1949 during which the Republic of China (ROC) ruled mainland China. Implications for current family business theory and practice are discussed.

Institutional Shareholders and Executive Compensation: An Ethical View

While institutional shareholders are shown to be effective monitors in curbing executive compensation in mature capital markets, this study presents findings from Chinese stock markets, and indicates the possible collusion between institutional shareholders (e.g. mutual funds) and executives in publicly listed companies. Mutual funds in China fail to serve as an effective monitor of executive compensation, suggesting that ethics seems to play no part when mutual funds and the management of listed companies extract their self-interests. Further analysis also demonstrates that, while bank-affiliated mutual funds are not better monitors than non-bank-affiliated ones, joint-equity-bank-affiliated ones are more effective monitors than state-owned-bank-affiliated ones.