International Review of Finance最新文献

This paper investigates portfolio selection and risk control between individuals and an insurer in a frame of stochastic Stackelberg differential game. In the Stackelberg game, the insurer plays as the leader who determines the price of insurance, and individuals play as the followers deciding how much insurance they should buy. On one hand, we suppose that there are $��n�$ homogeneous individuals in the market who can purchase insurance from one insurer. Each individual aims to achieve optimal consumption, insurance, and investment policies while considering premium prices and the performance of financial market. On the other hand, the insurer can adjust premium prices and investment policies in response to the individuals' insurance demands and the performance of financial market. Both individuals and the insurer aim to maximize their expectation of utilities. By employing the dynamic programming principle, we obtain closed-form solutions for optimal policies and value functions. The results show that the correlation between financial market and insurance market has a significant impact on the optimal strategy. A strong negative correlation would lead to an inefficient insurance market, but full insurance demand occurs for strong positive correlated markets. Most interestingly, our result indicates that insurance demand can effectively increase individuals consumption level and investment level on risk assets for positive correlated markets. Finally, we also find the equilibrium insurance price decreases and the equilibrium insurance demand increases with respect to the size of insurance market for positive correlated markets.

This paper investigates the impact of environmental regulation on corporate trade credit financing using the exogenous passage of industry-level cleaner production standards in China. The results of a staggered difference-in-differences model show that firms in regulated industries receive more trade credit. Further channel analysis shows that environmental regulation increases firms' usage of trade credit by increasing financial pressure and requirements for suppliers' product quality assurance. The effect is more pronounced for firms with greater initial bargaining power and stricter supervision. Moreover, we find that the increased trade credit associated with environmental regulation increases corporate green innovation, operating performance, and mitigates financial distress. Finally, we find that there is downstream propagation of product quality assurance, particularly for firms that rely heavily on downstream partners.

Based on the key focus areas in independent directors' performance reports, we investigate the impact of independent director (ID) diligence on equity capital cost using a sample of listed companies in China from 2015 to 2022. We find that firms with more diligent IDs experience significantly lower cost of equity. The effect is especially pronounced when IDs focus on investor return, external guarantees and capital occupation, and the usage of raised funds. Mechanism tests suggest that ID diligence reduces the cost of equity capital by alleviating two types of agency problems and improving information transparency. The impact of ID diligence on the cost of equity capital is stronger in firms with higher fraud risk, weaker equity balance, and lower external attention. The economic consequence tests further show that ID diligence can relieve financing constraints and increase firm value. Our findings inform regulators, investors, IDs, and other stakeholders interested in the economic consequences of ID performance.

This paper examines the influence of green bond investments on bond fund performance in China from June 2016 to June 2023. We find that funds investing in green bonds (“green funds”) significantly outperform their non-green counterparts. This outperformance can be attributed to a “redemption risk story,” where green bond investments mitigate redemption pressures, enabling fund managers to reduce liquidity buffers and reallocate capital to higher-yielding assets. Consistent with this story, the outperformance of green funds is more pronounced during periods of heightened redemption risk. Our research contributes to understanding the benefits of socially responsible investments in bond mutual funds.

This study proposes a simple and practical approach to measure firm-level health risk by examining stock performance during a prior crisis of a similar type. Using Chinese A-share firms—the only major market significantly affected by both SARS and COVID-19—we show that SARS returns robustly predict COVID-19 returns, even after controlling for systematic risk, firm characteristics, survivorship, industry effects, and investor behavior. Further analysis indicates that both expected cash flow and discount rate channels contribute to such return predictability. By offering an easily implementable measure of health risk and providing out-of-sample evidence from a major non-U.S. market, our study highlights the persistent role of health risk in firm valuation and extends the literature on pandemic-related financial risk.

We study the relationship between corporate cash holdings and expected stock returns through the lens of precautionary savings. Building on Palazzo, which predicts that firms more exposed to aggregate risk hold more cash and earn higher returns, we introduce a forward-looking measure—Cash-to-Market Equity (Cash-to-ME). Unlike the traditional Cash-to-Assets ratio, Cash-to-ME consistently predicts cross-sectional returns. The premium is conditional, concentrated among small and R&D-intensive firms facing financing frictions. In R&D firms, it is largely subsumed by R&D-to-ME, consistent with cash serving as a buffer for innovation. In non-R&D firms, cash-to-ME overlaps with book-to-market and cash-flow-to-price, reflecting value-like precautionary savings. Empirical tests show that the premium strengthens with cash-flow betas and low profitability, and that cash-rich firms gradually deploy reserves when constrained. These findings extend Palazzo's framework by providing long-horizon empirical validation and establishing Cash-to-ME as a priced proxy for precautionary savings.

This study examines the impact of inflation uncertainty on bank stability in the context of macroprudential regulations being increasingly adopted across countries. Utilizing a dataset of over 1600 banks in 33 emerging economies from 2000 to 2018, we find a negative relationship between inflation uncertainty and bank stability, indicating that higher inflation uncertainty significantly increases bank risk. However, our analysis reveals that tightened macroprudential regulations can effectively counteract this adverse influence, enhancing bank stability during periods of inflation uncertainty. These findings are consistent across a series of robustness tests, including alternative variable measurements, sensitivity analyses, and econometric approaches. Moreover, our results highlight the differential effectiveness of various macroprudential instruments. Specifically, regulations involving reserve requirements, asset-based instruments, and capital buffers demonstrate more pronounced effects in mitigating the impact of inflation uncertainty on bank stability.