Journal of Finance and Economics is supervised by Ministry of Education of PRC, and sponsored by Shanghai University of Finance and Economics. It aims to include research results on the major theories and practical problems in China’s reform and opening up and modernization of economic construction. Its scope covers all the major fields of Economics, including Public Economy, Finance, Accounting, Economic history, Regional Economics, Industrial Economics, International Economics. The Journal is included in CSSCI.
With the new round of rural financial reform, the development of financial diversity is of great significance for improving rural financial services and promoting the transformation of rural economic development. Based on the village-level financial diversity information provided by China Labor-force Dynamics Survey in 2012(
CLDS 2012), an empirical study of the impact of village financial diversity on farmers’ entrepreneurial decision-making was carried out. Conclusions are as follows. To begin with, village financial diversity plays a significant role in promoting farmers’ entrepreneurial decision-making. Specifically, for each standard deviation of financial diversity, rural residents’ probability of being entrepreneurs will increase by 0.8 percentage points. Second, financial diversity can effectively promote “employer” entrepreneurship, but has no significant impact on “self-employed” entrepreneurship. Third, informal financial institutions have stronger promotion effects on entrepreneurship than formal financial institutions. Fourth, formal financial institutions have promotion effects on “employer” entrepreneurship while informal financial institutions have promotion effects on “self-employed” entrepreneurship. Last but not least, village financial diversity improves rural residents’ “employer” entrepreneurship willingness in future. This study provided not only the empirical evidence for understanding the micro-mechanism that financial development affects economic growth, but also policy suggestions of promoting entrepreneurship in rural areas.
The outbreak of the 2008 international financial crisis underlines banking system instability, and the improper CEO compensation incentive plans are generally regarded as a deep cause. Hence, the US, the UK and the EU all issued schemes to reform banking CEO compensation, among which the debt-based incentives, such as deferred compensation and bonus recovery, are the important measures. In February of 2010, China Banking Regulatory Commission (CBRC) also released “Guidelines for Robust Compensation Supervision of Commercial Banks,” clearly requiring commercial banks to enact the alike debt-based incentives. This practice has linked risk costs and risk deduction directly with CEO compensation, and as a result, compensation mechanism can fully play the constraint role in risk prevention. Existing literature on effects of debt-based incentives centers around the risk taking at individual banking level, and proves that debt-based incentives are helpful to the achievement of benefit consistency between CEOs and creditors, and the alleviation of benefit conflicts between stake-holders and creditors, thus decreasing banks’ downside risk, from perspectives of hedging decisions, payment policies, earnings management, credit allocation and so on. However, a key limitation lies in that these studies do not further explore the impact of CEO debt-based incentives on banking systemic risks. Then, whether or not debt-based incentives can lower banking systemic risks is still not known, and moreover, if so, what on earth are the influencing channels? Answers to those problems are of great practical significance to the implementation of compensation reform scheme and the forestalling of systemic risks. By collecting a sample data of Chinese listed banks from 2008 to 2015, this paper firstly applies CoVaR approach to measure each bank’s systemic risks, then builds up the unobserved effects panel model to analyze the direct effect of debt-based incentives on banking systemic risks, and finally constructs a pair of channel-effect system equations to further elaborate the indirect effect. Measurement results tell us that, no matter in crisis times or during stationary periods, banks show steady differences in systemic risks. Generally speaking, systemic risks are high in large-scaled state-owned banks or joint-stock banks, such as the Industrial and Commercial Bank of China, Pudong Development Bank, China Merchants Bank, China Construction Bank and China Industrial Bank, while those are low in small-scaled city commercial banks, such as Bank of Ningbo and Bank of Nanjing. In addition, volatility analysis of systemic risks discloses remarkable heterogeneity among banks, namely, systemic risk of China Merchants Bank is the most volatile and that of Bank of Nanjing the least volatile. As to the empirical results, the main points are as follows. Firstly, CEO debt-based incentives can significantly deter banking systemic risks after controlling elements such as bank characteristics, corporate governance features and economic conditions. By implementing inside debt-based incentives in the form of deferred compensation, it helps to strengthen CEOs’ precautionary consciousness on bank risks. The logic behind this is that debt-based incentives can effectively mitigate the principal-agent conflict, thus reducing CEOs’ excessive risk taking activities and bank risk transfer possibility. Secondly, debt-based incentives lower banking systemic risks mainly through the decrease in maturity mismatch between banks’ assets and liabilities and the increase in banks’ non-interest income, especially commission and fees. On the one hand, a reduction in maturity mismatch would inhibit liquidity risk and default risk, thereby weakening inter-bank correlation and risk contagion. On the other hand, the enhancement of non-interest income would raise income stability, thereby alleviating the impact of systemic shocks. Lastly, the channel effects of financial derivatives are not significant, possibly because China’s financial derivative market started too late and the banking institutions are too cautious to intervene in it too much. This paper contributes to the existing literature in two aspects. In the first place, it fills the gap in disclosing the relationship between CEO debt-based incentives and banking systemic risks, and thus provides direct support for the optimization of compensation mechanism design. In the second place, it comprehensively studies the influencing channels of CEO debt-based incentives on banking systemic risks from perspectives of maturity mismatch, non-interest income and financial derivatives, and thus expands horizons for prudential regulation.
With the rise in “from micro to macro” paradigm recently, the information of aggregate earnings gets increasing attention and its predictability for economic growth has been confirmed. As Ball and Sadka (2015) pointed out, however, the predictability of aggregate earnings is not the only accumulation of firm-level earnings, researchers should focus on the effect paths of forecasts of macro-economic growth by accounting information. Based on the intrinsic logic of national economic accounting system and accounting conservatism principle, this paper decomposed earnings into assets impairment losses (AIL) and adjusted accounting earnings (AAE), and investigated the paths of forecasts of future GDP growth by accounting information. The theoretical logic for the design is following. The accounting earnings are the matching result of income and costs using the accrual basis, which reflect the events and transactions in the past, and its measurement attribute is mainly historical costs. As the component of GDP, operating surpluses are highly compatible with accounting earnings in concept and calculation. It was thus proposed that the predictability of aggregate earnings largely drives from the mathematical correlation of accounting earnings and operating surpluses. In other words, there might be a path function as “current AAE - future operating surplus - future GDP growth,” which is defined as “earnings conduction.” However, the predictability of AIL follows a different logic from AEE. First, the AIL embodies the conservatism principle, which requires that the expected future losses should be recognized in advance. Therefore, AIL in annual reports indicates the managerial estimation about the business risks and negative macro shocks, and manifests the consequences of fair value measurement. Second, AAE is highly serially correlated, while the recognition of AIL is accidental and is excluded from the national economic accounting system. Third, as AIL is the result from managerial judgment and estimation on risks, it contains private information about macro risks. AIL might be manipulated for earnings management purpose. Nevertheless, the aggregation progress could offset the noises and thus reflects systematical estimation of further macro-economic risks. Therefore, we defined the predictability of the AIL driving from the systematical estimation of future macro-economic risks as “risk perception.” Based on the quarterly aggregated data of Shanghai and Shenzhen A-share companies from 2003 to 2016, this paper confirmed that both AIL and AAE could be used to predict future GDP growth, but the predictability follows different paths. By adopting the mediating effect model, the macro-economic risk has a significantly mediating effect in the prediction process of AIL, but not significant in the prediction process of AAE, confirming the “risk perception” path. Meanwhile, the reverse regression tests show that the predictability of AAE mainly comes from its mathematic correlation with operating surplus, and the correlation of AIL and GDP growth is not affected by operating surpluses, which is consistent with the “earnings conduction” path. Furthermore, it is found that the negative relation between AIL and future GDP growth is stronger during economic downturn period than that during economic upswing period, while the prediction function of AAE has no difference during economic downturn or upswing periods. The potential contributions of this paper are as follows. First, by integrating the conservatism principle with the national economic accounting system, we for the first time proposed and demonstrated the effect paths of forecasts of macro-economic growth by accounting information, namely, “earnings conduction” and “risk perception.” Second, many existing research investigated the micro-level consequence of conservatism principle and also studied its relation to AIL, but few studies examined its macro-level consequences from the macro-perspective except Crawley (2015) who found accounting conservatism could impact monetary policy. This paper provided further evidence for the macro-economic consequences of accounting conservatism.
In some industries with consumer variety seeking and congestion effects, firms often use discriminatory pricing based on purchase history. In this paper, we establish a two-stage game model to investigate this type of industries and business model. Results show that both market environment factors (consumer variety seeking and congestion effects) can increase firms’ market power, but the main reason for discriminatory pricing is the former effect. After the purchase in the first stage, consumer variety seeking leads to differences in product evaluation. Firms can effectively distinguish different consumer groups, leading to market segmentation and discriminatory pricing in the second stage. The firms offer discounted prices for loyal consumers, but set higher prices for new consumers in an attempt to attract repeated purchase and prevent the loss of old consumers. The congestion effect exists for all consumers, so it does not lead to differences in product evaluation, making it impossible for firms to enact discriminatory pricing. The congestion effect however prevents them from reducing prices to attract consumers, and weakens competition among firms, resulting in tacit collusion among oligopolists. In fact, we find that both market environment factors weaken price competition. Compared with uniform pricing, discriminatory pricing results in lower equilibrium prices in both stages. Both equilibrium profits and social welfare are also reduced, but consumers gain higher surplus in the end. Further analysis shows that discriminatory pricing based on purchase history is an equilibrium result for both firms, reducing the profits of each firm. Therefore, the firms fall into the “prisoner’s dilemma.” This paper explores the competition policy for discriminatory pricing based on purchase history from the perspective of total social welfare. Such discriminatory pricing is a type of third-stage discriminatory pricing. Discriminatory pricing does not increase the total quantity of goods sold, so total social welfare declines. In general, in an industry with consumer variety-seeking and congestion effects, sufficient competition exists among firms which have almost no market power, and their pricing behaviors benefit consumers. The loss of social welfare mainly comes from consumer variety seeking; and it is very difficult to acquire consumer characteristics, for information costs are high. For these reasons, we believe that competition policies should allow firms to adopt such pricing strategies and should not interfere with it excessively. Antitrust authorities should only take cautious measures, upon confirmation that firms applying such pricing strategy hold a dominant market position.
