Tianyu Zhang - Academia.edu (original) (raw)
Papers by Tianyu Zhang
Journal of Banking & Finance, 2015
We study how Chinese private entrepreneurs benefit from participating in politics. Using original... more We study how Chinese private entrepreneurs benefit from participating in politics. Using original hand-collected data on listed firms controlled by private entrepreneurs, we document a significant positive relationship between political participation and change in firm performance. We also provide evidence that the change in social status cannot explain the change in performance. We then identify several ways through which firms gain preferential treatment when the controlling entrepreneur participates in politics: better access to debt financing, preferential tax treatment, more government subsidies, and superior access to regulated industries.
SSRN Electronic Journal, 2007
This paper examines the impact that political forces have on the flow of negative financial infor... more This paper examines the impact that political forces have on the flow of negative financial information into stock prices. Using a unique sample of listed Chinese firms ultimately controlled by local and/or provincial government entities, we test the proposition that the incentives of politicians and the local government shape financial reporting practices, especially with respect to the release of information about bad outcomes. We examine the flow of negative information around three visible political events: The National Congress of the Chinese Communist Party, provincial-level promotions, and the revelation of provincial-level corruption investigations. We find that statecontrolled firms are significantly less likely to experience negative stock price crashes in the years of the National Congress of the CCP and in advance of political promotion decisions. Further analyses reveal that the suppression of negative information around National Congress meetings is a countrylevel phenomenon, while political promotion events produce local incentives to suppress negative information. These promotion effects are strongest in those regions where (a) meaningful capital market development, (b) strong performance expectations and (c) high levels of foreign investment raise the political and reputation costs of reporting financial performance. Overall, our results highlight the important role that political forces play in shaping financial reporting incentives of state-controlled entities.
SSRN Electronic Journal, 2005
We examine the pyramidal ownership structure of a large sample of newly listed Chinese companies ... more We examine the pyramidal ownership structure of a large sample of newly listed Chinese companies controlled by local governments or private entrepreneurs. Both types of the owners use layers of intermediate companies to control their firms. However, their pyramiding behaviors are likely affected by different property rights constraints. Local governments are constrained by the Chinese laws prohibiting free transfer of state ownership. Pyramiding allows them to credibly decentralize their firm decision rights to firm management without selling off their ownership. Private entrepreneurs are constrained by their lack of access to external funds. Pyramiding creates internal capital markets that help relieving their external financing constraints. Our empirical results support these conjectures. Local governments build more extensive corporate pyramids when they are less burdened with fiscal or unemployment problems, when they have more long-term goals, and when their firm decisions are more subject to market and legal disciplines. The more extensive pyramids are also associated with smaller "underpricing" when the firms go public. Entrepreneur owners construct more complex corporate pyramids when they do not have a very deep pocket-as indicated by their personal wealth.
Journal of Financial Economics, 2007
Property rules of China's partial share issue privatization have created rent-seeking incentives ... more Property rules of China's partial share issue privatization have created rent-seeking incentives for politicians that may hurt the performance and corporate governance of newly listed state enterprises. The study reports that 28% of the CEOs in the sample of 617 firms are ex-or current government bureaucrats. The three-year post-IPO stock returns of the full sample underperform the market by 23%. Much of the underperformance is attributable to the firms run by politically-connected CEOs: the underperformance of firms with politically-connected CEOs exceeds those without politically-connected CEOs by 37%. Firms with politically-connected CEOs are more likely to appoint other bureaucrats to the management teams and boards of directors, while they appoint fewer directors with relevant professional background or prior business experience, nor any representative of minority shareholders. The presence of politically-connected CEOs is related to the unemployment and fiscal conditions of the firms' regions while unrelated to most firm characteristics. Overall, the results indicate that the appointment of politically-connected CEOs does not enhance firm efficiency but rather fulfill political goals of politicians. a This is a preliminary draft. Please do not quote or cite. We appreciate helpful comments from Yijiang Wang and other participants of the
Journal of Financial Economics, 2014
This paper examines whether incentives created by the impending turnover of local politicians can... more This paper examines whether incentives created by the impending turnover of local politicians can accelerate the pace of IPO activity in certain politicized environments. Focusing on China, we exploit a research setting where politicians are rewarded for capital market development, firms rely on political connections for access to capital, rent-seeking behavior is rampant, and the objectives of the State may not be to maximize capital market efficiency. We document that the rate of exchange-eligible firms engaging in an IPO temporarily increases in advance of impending political promotion events. This effect holds for both state-owned and non-state-owned entities. For state-owned firms, the effect is strongest in those provinces where the politicians are more likely to be rewarded for market development activity. For non-state-owned firms, the temporary increase in IPO activity appears to be (rationally) opportunistic in nature, with the effect stronger around events more likely to disrupt the firms' political connections. Promotion period IPOs underperform non-promotion periods IPOs in terms of both future financial performance and long-run stock returns, have controlling shareholders who retain a larger fraction of the company, and are more likely to divert proceeds away from their intended use after the offering.
Journal of Comparative Economics, 2014
Using a sample of 231 entrepreneurial firm successions in Hong Kong, Singapore, and Taiwan, we fi... more Using a sample of 231 entrepreneurial firm successions in Hong Kong, Singapore, and Taiwan, we find that firms' unsigned discretionary accruals decrease while timely loss recognition increases subsequent to successions, suggesting a shift in accounting toward a less insider-based system. We argue that the change in accounting properties is due to the loss of specialized assets in the succession process, such as the entrepreneur's reputation and political/social networks, inducing the firm to adapt to market-based rather than relationship-based contracting. Moreover, we find that the extent of the shift in accounting is larger in founder successions than in subsequent (non-founder) successions, as the dissipation of specialized assets is greatest in founder successions.
Journal of Banking & Finance, 2015
We study how Chinese private entrepreneurs benefit from participating in politics. Using original... more We study how Chinese private entrepreneurs benefit from participating in politics. Using original hand-collected data on listed firms controlled by private entrepreneurs, we document a significant positive relationship between political participation and change in firm performance. We also provide evidence that the change in social status cannot explain the change in performance. We then identify several ways through which firms gain preferential treatment when the controlling entrepreneur participates in politics: better access to debt financing, preferential tax treatment, more government subsidies, and superior access to regulated industries.
SSRN Electronic Journal, 2007
This paper examines the impact that political forces have on the flow of negative financial infor... more This paper examines the impact that political forces have on the flow of negative financial information into stock prices. Using a unique sample of listed Chinese firms ultimately controlled by local and/or provincial government entities, we test the proposition that the incentives of politicians and the local government shape financial reporting practices, especially with respect to the release of information about bad outcomes. We examine the flow of negative information around three visible political events: The National Congress of the Chinese Communist Party, provincial-level promotions, and the revelation of provincial-level corruption investigations. We find that statecontrolled firms are significantly less likely to experience negative stock price crashes in the years of the National Congress of the CCP and in advance of political promotion decisions. Further analyses reveal that the suppression of negative information around National Congress meetings is a countrylevel phenomenon, while political promotion events produce local incentives to suppress negative information. These promotion effects are strongest in those regions where (a) meaningful capital market development, (b) strong performance expectations and (c) high levels of foreign investment raise the political and reputation costs of reporting financial performance. Overall, our results highlight the important role that political forces play in shaping financial reporting incentives of state-controlled entities.
SSRN Electronic Journal, 2005
We examine the pyramidal ownership structure of a large sample of newly listed Chinese companies ... more We examine the pyramidal ownership structure of a large sample of newly listed Chinese companies controlled by local governments or private entrepreneurs. Both types of the owners use layers of intermediate companies to control their firms. However, their pyramiding behaviors are likely affected by different property rights constraints. Local governments are constrained by the Chinese laws prohibiting free transfer of state ownership. Pyramiding allows them to credibly decentralize their firm decision rights to firm management without selling off their ownership. Private entrepreneurs are constrained by their lack of access to external funds. Pyramiding creates internal capital markets that help relieving their external financing constraints. Our empirical results support these conjectures. Local governments build more extensive corporate pyramids when they are less burdened with fiscal or unemployment problems, when they have more long-term goals, and when their firm decisions are more subject to market and legal disciplines. The more extensive pyramids are also associated with smaller "underpricing" when the firms go public. Entrepreneur owners construct more complex corporate pyramids when they do not have a very deep pocket-as indicated by their personal wealth.
Journal of Financial Economics, 2007
Property rules of China's partial share issue privatization have created rent-seeking incentives ... more Property rules of China's partial share issue privatization have created rent-seeking incentives for politicians that may hurt the performance and corporate governance of newly listed state enterprises. The study reports that 28% of the CEOs in the sample of 617 firms are ex-or current government bureaucrats. The three-year post-IPO stock returns of the full sample underperform the market by 23%. Much of the underperformance is attributable to the firms run by politically-connected CEOs: the underperformance of firms with politically-connected CEOs exceeds those without politically-connected CEOs by 37%. Firms with politically-connected CEOs are more likely to appoint other bureaucrats to the management teams and boards of directors, while they appoint fewer directors with relevant professional background or prior business experience, nor any representative of minority shareholders. The presence of politically-connected CEOs is related to the unemployment and fiscal conditions of the firms' regions while unrelated to most firm characteristics. Overall, the results indicate that the appointment of politically-connected CEOs does not enhance firm efficiency but rather fulfill political goals of politicians. a This is a preliminary draft. Please do not quote or cite. We appreciate helpful comments from Yijiang Wang and other participants of the
Journal of Financial Economics, 2014
This paper examines whether incentives created by the impending turnover of local politicians can... more This paper examines whether incentives created by the impending turnover of local politicians can accelerate the pace of IPO activity in certain politicized environments. Focusing on China, we exploit a research setting where politicians are rewarded for capital market development, firms rely on political connections for access to capital, rent-seeking behavior is rampant, and the objectives of the State may not be to maximize capital market efficiency. We document that the rate of exchange-eligible firms engaging in an IPO temporarily increases in advance of impending political promotion events. This effect holds for both state-owned and non-state-owned entities. For state-owned firms, the effect is strongest in those provinces where the politicians are more likely to be rewarded for market development activity. For non-state-owned firms, the temporary increase in IPO activity appears to be (rationally) opportunistic in nature, with the effect stronger around events more likely to disrupt the firms' political connections. Promotion period IPOs underperform non-promotion periods IPOs in terms of both future financial performance and long-run stock returns, have controlling shareholders who retain a larger fraction of the company, and are more likely to divert proceeds away from their intended use after the offering.
Journal of Comparative Economics, 2014
Using a sample of 231 entrepreneurial firm successions in Hong Kong, Singapore, and Taiwan, we fi... more Using a sample of 231 entrepreneurial firm successions in Hong Kong, Singapore, and Taiwan, we find that firms' unsigned discretionary accruals decrease while timely loss recognition increases subsequent to successions, suggesting a shift in accounting toward a less insider-based system. We argue that the change in accounting properties is due to the loss of specialized assets in the succession process, such as the entrepreneur's reputation and political/social networks, inducing the firm to adapt to market-based rather than relationship-based contracting. Moreover, we find that the extent of the shift in accounting is larger in founder successions than in subsequent (non-founder) successions, as the dissipation of specialized assets is greatest in founder successions.