Size Effect on Stock Returns based on Asset Pricing Models in Chinese Stock Market

This dissertation aims to examine the size effect pattern on stock returns based on asset pricing models in China’s stock market. Empirical tests were carried out according to traditional and modified Fama French three-factor models and characteristic-based model. Unlike several research papers, which have shown that firm size effect is linear, I found an inverted-U shape in the firm scale effect on stock return in China by investigating samples selected from A-shares on the Shanghai and Shenzhen Exchange Market in the period between 2010 and 2017. At the lower level of firm size, it has positive influence on stock returns; however, high levels of firm scale have negative influence on stock returns

Reduced disclosure and default risk: analysis of smaller reporting companies

We examine the causal effect of reduced disclosure levels on the risk of default. Employing regression discontinuity (RD) design as our main identification strategy and the smaller reporting company rule (SRC rule) as the exogenous source of variation, we show that smaller reporting companies (SRCs), which are permitted to provide scaled disclosures in their 10-Ks, experience significantly and economically higher default risk. We demonstrate that, while there is no effect of information loss if a smaller reporting company voluntarily maintains its disclosure level by continuing to report its financial performance in full, there is an increase in its default risk due to the loss of commitment to mandatory disclosure. We also find that, compared to previously qualified SRCs, newly qualified smaller reporting companies face steeper increases in bankruptcy risk during their first year of eligibility. Our analysis indicates that strong external oversight mechanisms, better corporate governance, and credible audit quality attenuate the negative impact of reduced disclosure levels on the risk of default. Our results are robust to alternative model specifications, RD design assumptions, and measures of default risk

TOC interpretation of lithofacies-based categorical regression model: A case study of the Yanchang formation shale in the Ordos basin, NW China

In this paper, taking the shale of Chang 7-Chang 9 oil formation in Yanchang Formation in the southeastern Ordos Basin as an example, through the study of shale heterogeneity characteristics, starting from the preprocessing of supervision data set, a logging interpretation method of total organic carbon content (TOC) on the lithofacies-based Categorical regression model (LBCRM) is proposed. It is show that: 1) Based on core observation, and Differences of sedimentation and structure, five lithofacies developed in the Yanchang Formation: shale shale facies, siltstone/ultrafine sandstone facies, tuff facies, argillaceous shale facies with silty lamina and argillaceous shale facies with tuff lamina. 2) The strong heterogeneity of shale makes it difficult to accurately explain the TOC distribution of shale intervals in the application of model-based interpretation methods. The LBCRM interpretation method based on the understanding of shale heterogeneity can effectively reduce the influence of formation factors other than TOC on the prediction accuracy by studying the characteristics of shale heterogeneity and constructing a TOC interpretation model for each lithofacies category. At the same time, the degree of unbalanced distribution of data is reduced, so that the data mining algorithm achieves better prediction effect. 3) The interpretability of lithofacies logging ensures the wellsite application based on the classification and regression model of lithofacies. Compared with the traditional homogeneous regression model, the prediction performance has been greatly improved, TOC segment prediction is more accurate. 4) The LBCRM method based on shale heterogeneity can better understand the reasons for the deviation of the traditional model-based interpretation method. After being combined with the latter, it can make logging data provide more useful information

Formation and Identification of Unresolved Complex Mixtures in Lacustrine Biodegraded Oil from Nanxiang Basin, China

A comprehensive two-dimensional gas chromatography/time-of-flight mass spectrometry (GC × GC/TOFMS) method has been developed for the formation and identification of unresolved complex mixtures (UCMs) in lacustrine biodegraded oils that with the same source rock, similar maturity, and increasing degradation rank from Nanxiang Basin, China. Normal alkanes, light hydrocarbons, isoprenoids, steranes, and terpanes are degraded gradually from oil B330 to oil G574. The compounds in biodegraded oil (oil G574) have fewer types, the polarity difference of compounds in different types is minor, and the relative content of individual compounds is similar. All the features make the compounds in biodegraded oil coelute in GC analysis and form the raised “baseline hump” named UCMs. By injecting standard materials and analyzing mass spectrums of target compounds, it is shown that cyclic alkanes with one to five rings are the major components of UCMs. Furthermore, UCMs were divided into six classes. Classes I and II, composed of alkyl-cyclohexanes, alkyl-naphthanes, and their isomers, are originated from the enrichment of hydrocarbons resistant to degradation in normal oils. Classes III ~ VI, composed of sesquiterpenoids, tricyclic terpanes, low molecular steranes, diasteranes, norhopanes, and their isomers, are probably from some newly formed compounds during the microbial transformation of oil

Size Effect on Stock Returns based on Asset Pricing Models in Chinese Stock Market

This dissertation aims to examine the size effect pattern on stock returns based on asset pricing models in China’s stock market. Empirical tests were carried out according to traditional and modified Fama French three-factor models and characteristic-based model. Unlike several research papers, which have shown that firm size effect is linear, I found an inverted-U shape in the firm scale effect on stock return in China by investigating samples selected from A-shares on the Shanghai and Shenzhen Exchange Market in the period between 2010 and 2017. At the lower level of firm size, it has positive influence on stock returns; however, high levels of firm scale have negative influence on stock returns

Essays on Finance and Risk

This thesis consists of three essays on corporate finance, with a focus on corporate governance in both the US and Chinese markets. The causal effect of reduced disclosure levels on the risk of default in the US market from 2008 to 2019 is examined in the first topic using regression discontinuity (RD) designs as the main identification strategy and the rule of Smaller Reporting Company Regulatory Relief and Simplification as the exogenous source of variation. The results indicate that smaller reporting companies, which are permitted to provide scaled disclosure in their 10-Ks, experience significantly and economically higher default risk. I demonstrate that the effect of information loss due to reduced disclosure levels dominates the effect of loss of commitment to mandatory disclosure and that, compared to previously qualified smaller reporting companies, newly qualified smaller reporting companies face steeper increases in bankruptcy risk during their first year of eligibility. The analyses also indicate that strong external oversight mechanisms, better corporate governance, and credible audit quality tend to alleviate the negative impact of reduced disclosure levels on the risk of default. The results are robust under alternative model specifications, regression discontinuity design assumptions and measures of default risk. Using the book-tax gap not attributable to accounting accruals as the measure of tax avoidance, the impact of corporate culture on the tendency of companies to avoid tax from tax authorities in the US market is empirically examined in the second topic. Following the “Competing Values Framework”, corporate culture is classified into four culture dimensions: collaborate, control, create and compete, and quantified by examining 10-Ks using text analysis. The results indicate that companies with a collaboration- and competition-oriented culture have a tendency to avoid more tax, while those with a control-oriented culture tend to avoid less. The results also indicate that the impact of a collaboration- and competition- oriented culture on tax avoidance is mitigated when the measure of high-powered incentives is taken into consideration. This indicates that reducing the agency problem weakens the links between cultures and tax avoidance. The results are also robust to alternative measures of tax avoidance and different model specifications. The third chapter investigates the effects of monitoring and advisory roles of friendly boards on CEO compensation under the Chinese context. The robust findings reveal that friendly boards weaken monitoring efficiency, thus attenuating a positive link between CEO compensation and firm performance. However, friendly boards better perform advisory duties, thus weakening a negative link between CEO compensation and R&D expenditure. Most importantly, the results show that friendly boards increase firms’ R&D investment by alleviating CEO compensation risk, and also enhance innovation efficiency by strengthening a positive link between the number of patents and R&D investments. It is worth noting that although the empirical analyses have uncovered the beneficial side of friendly boards, it does not contradict to earlier studies which state that independent boards are good for firms. The extended analyses in this study show that while there is an absent link between firm value and friendly boards in general, friendly boards still increase firm value by serving their advisory functions on R&D projects

Essays on Finance and Risk

This thesis consists of three essays on corporate finance, with a focus on corporate governance in both the US and Chinese markets. The causal effect of reduced disclosure levels on the risk of default in the US market from 2008 to 2019 is examined in the first topic using regression discontinuity (RD) designs as the main identification strategy and the rule of Smaller Reporting Company Regulatory Relief and Simplification as the exogenous source of variation. The results indicate that smaller reporting companies, which are permitted to provide scaled disclosure in their 10-Ks, experience significantly and economically higher default risk. I demonstrate that the effect of information loss due to reduced disclosure levels dominates the effect of loss of commitment to mandatory disclosure and that, compared to previously qualified smaller reporting companies, newly qualified smaller reporting companies face steeper increases in bankruptcy risk during their first year of eligibility. The analyses also indicate that strong external oversight mechanisms, better corporate governance, and credible audit quality tend to alleviate the negative impact of reduced disclosure levels on the risk of default. The results are robust under alternative model specifications, regression discontinuity design assumptions and measures of default risk. Using the book-tax gap not attributable to accounting accruals as the measure of tax avoidance, the impact of corporate culture on the tendency of companies to avoid tax from tax authorities in the US market is empirically examined in the second topic. Following the “Competing Values Framework”, corporate culture is classified into four culture dimensions: collaborate, control, create and compete, and quantified by examining 10-Ks using text analysis. The results indicate that companies with a collaboration- and competition-oriented culture have a tendency to avoid more tax, while those with a control-oriented culture tend to avoid less. The results also indicate that the impact of a collaboration- and competition- oriented culture on tax avoidance is mitigated when the measure of high-powered incentives is taken into consideration. This indicates that reducing the agency problem weakens the links between cultures and tax avoidance. The results are also robust to alternative measures of tax avoidance and different model specifications. The third chapter investigates the effects of monitoring and advisory roles of friendly boards on CEO compensation under the Chinese context. The robust findings reveal that friendly boards weaken monitoring efficiency, thus attenuating a positive link between CEO compensation and firm performance. However, friendly boards better perform advisory duties, thus weakening a negative link between CEO compensation and R&D expenditure. Most importantly, the results show that friendly boards increase firms’ R&D investment by alleviating CEO compensation risk, and also enhance innovation efficiency by strengthening a positive link between the number of patents and R&D investments. It is worth noting that although the empirical analyses have uncovered the beneficial side of friendly boards, it does not contradict to earlier studies which state that independent boards are good for firms. The extended analyses in this study show that while there is an absent link between firm value and friendly boards in general, friendly boards still increase firm value by serving their advisory functions on R&D projects

The Causal Effect of Improved Readability of Financial Reporting on Stock Price Crash Risk: Evidence from the Plain Writing Act of 2010

This paper shows that obfuscating financial reports leads to an increase in the risk of stock price crash. Exploiting the Plain Writing Act of 2010 (PWA) as the exogenous source of variation, the results of the difference-indifferences (DID) estimation show that improved readability of 10-Ks, as a result of the PWA, caused the stock price crash risk to fall. Our results survive the falsification check and are robust under different measures of readability and crash risk