Pub Date : 2025-12-20DOI: 10.1016/j.intfin.2025.102277
Shujie Wang , Liyan Han , Xiaoguang Yang , Tongshuai Qiao
Although prior studies suggest that investor regret is a salient behavioral force in emerging markets, the factors driving the regret (REG) premium remain underexplored. This paper fills this gap by investigating the underlying drivers within China’s distinctive market and institutional context. Using portfolio sorts and Fama-MacBeth regressions from 1995 to 2024, we find that high-REG stocks earn significantly higher risk-adjusted returns. Further analyses reveal that the REG premium is stronger for non-state-owned enterprises, during periods of high market volatility, in low-information environments, and when investor sentiment is weak. Liquidity improvements, greater market openness, and higher institutional participation substantially attenuate the effect. Robustness checks using alternative benchmarks, extended estimation horizons, and an orthogonalized measure confirm that the REG premium is a robust and persistent market anomaly. Overall, our findings suggest that improvements in the market environment help reduce mispricing, providing broader insights into behavioral asset pricing and financial liberalization in emerging markets.
{"title":"What Drives the Regret Premium: Evidence from China","authors":"Shujie Wang , Liyan Han , Xiaoguang Yang , Tongshuai Qiao","doi":"10.1016/j.intfin.2025.102277","DOIUrl":"10.1016/j.intfin.2025.102277","url":null,"abstract":"<div><div>Although prior studies suggest that investor regret is a salient behavioral force in emerging markets, the factors driving the regret (REG) premium remain underexplored. This paper fills this gap by investigating the underlying drivers within China’s distinctive market and institutional context. Using portfolio sorts and Fama-MacBeth regressions from 1995 to 2024, we find that high-REG stocks earn significantly higher risk-adjusted returns. Further analyses reveal that the REG premium is stronger for non-state-owned enterprises, during periods of high market volatility, in low-information environments, and when investor sentiment is weak. Liquidity improvements, greater market openness, and higher institutional participation substantially attenuate the effect. Robustness checks using alternative benchmarks, extended estimation horizons, and an orthogonalized measure confirm that the REG premium is a robust and persistent market anomaly. Overall, our findings suggest that improvements in the market environment help reduce mispricing, providing broader insights into behavioral asset pricing and financial liberalization in emerging markets.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"107 ","pages":"Article 102277"},"PeriodicalIF":6.1,"publicationDate":"2025-12-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145797348","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-18DOI: 10.1016/j.intfin.2025.102265
Jinhyeong Jo , Doojin Ryu
We suggest a model in which General Partners (GPs) can have incentives to distort valuations in continuation funds, an increasingly common vehicle in private equity. GPs may inflate valuations to raise fees under asymmetric information and misaligned incentives between exit and rolling Limited Partners (LPs). Such distortion diminishes when the proportion of rolling LPs is higher and when the GP faces stronger prospects of raising follow-on funds. We characterize the model under Limited Partner Advisory Committee (LPAC) approval and investor participation. We propose governance measures to strengthen valuation integrity by capturing the bargaining dynamics between exit and rolling LPs.
{"title":"Do GPs truly present fair value? The case of continuation funds","authors":"Jinhyeong Jo , Doojin Ryu","doi":"10.1016/j.intfin.2025.102265","DOIUrl":"10.1016/j.intfin.2025.102265","url":null,"abstract":"<div><div>We suggest a model in which General Partners (GPs) can have incentives to distort valuations in continuation funds, an increasingly common vehicle in private equity. GPs may inflate valuations to raise fees under asymmetric information and misaligned incentives between exit and rolling Limited Partners (LPs). Such distortion diminishes when the proportion of rolling LPs is higher and when the GP faces stronger prospects of raising follow-on funds. We characterize the model under Limited Partner Advisory Committee (LPAC) approval and investor participation. We propose governance measures to strengthen valuation integrity by capturing the bargaining dynamics between exit and rolling LPs.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"107 ","pages":"Article 102265"},"PeriodicalIF":6.1,"publicationDate":"2025-12-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145797347","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-15DOI: 10.1016/j.intfin.2025.102274
Lu Jolly Zhou, Wanqing Zheng, Haotian Tang, Xinru Li
This paper examines how stock market liberalization affects product market competitiveness in emerging economies. Using the Mainland China-Hong Kong Stock Connect program as a quasi-natural experiment, we employ a staggered difference-in-differences approach. The empirical evidence shows that stock market liberalization, on average, is associated with an increase of 19.45% in firms’ market share relative to the sample mean. This effect operates through improving information disclosure and enhancing product quality. The effect is more pronounced for firms in growth and maturity lifecycle stages, with stronger corporate reputations, and better governance structures. The further evidence suggests while financial globalization generally enhances competitive positioning, it simultaneously intensifies short-term predation risks as increased transparency provides competitors with strategic insights.
{"title":"Opportunity or challenge? The impact of stock market liberalization on product market competitiveness","authors":"Lu Jolly Zhou, Wanqing Zheng, Haotian Tang, Xinru Li","doi":"10.1016/j.intfin.2025.102274","DOIUrl":"10.1016/j.intfin.2025.102274","url":null,"abstract":"<div><div>This paper examines how stock market liberalization affects product market competitiveness in emerging economies. Using the Mainland China-Hong Kong Stock Connect program as a quasi-natural experiment, we employ a staggered difference-in-differences approach. The empirical evidence shows that stock market liberalization, on average, is associated with an increase of 19.45% in firms’ market share relative to the sample mean. This effect operates through improving information disclosure and enhancing product quality. The effect is more pronounced for firms in growth and maturity lifecycle stages, with stronger corporate reputations, and better governance structures. The further evidence suggests while financial globalization generally enhances competitive positioning, it simultaneously intensifies short-term predation risks as increased transparency provides competitors with strategic insights.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"107 ","pages":"Article 102274"},"PeriodicalIF":6.1,"publicationDate":"2025-12-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145797344","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-15DOI: 10.1016/j.intfin.2025.102267
Alexandros Skouralis
This paper provides the first comprehensive quantification of the systemic risk posed by non-listed financial institutions in the UK, focusing on building societies, digital-only challenger banks, and foreign-owned retail banks. Using an indirect estimation approach, systemic risk is measured through balance sheet characteristics, calibrated against listed institutions’ SRISK values. The findings reveal that Nationwide ranks among the top ten systemically important institutions, while several other building societies contribute significantly to aggregate systemic risk. In contrast, digital-only challenger banks exhibit low systemic risk due to high equity ratios and limited interconnectedness, despite rapid growth and persistent financial losses. Santander, a foreign-owned retail bank, emerges as the ninth most systemically important institution, with risk levels comparable to systemically-important domestic banks. We conduct extensive robustness checks, including alternative predictors and SRISK specifications, out-of-sample forecasting, and Principal Component Analysis, which confirms the strong co-movement between building societies and the largest UK banks. Finally, we compare SRISK with traditional Z-score metrics to highlight their complementary nature. These findings underscore the need to extend systemic risk frameworks beyond listed entities and support calls to expand the stress testing perimeter to include large non-listed and foreign-owned firms.
{"title":"Systemic risk under the radar: Evidence from building societies and challenger banks","authors":"Alexandros Skouralis","doi":"10.1016/j.intfin.2025.102267","DOIUrl":"10.1016/j.intfin.2025.102267","url":null,"abstract":"<div><div>This paper provides the first comprehensive quantification of the systemic risk posed by non-listed financial institutions in the UK, focusing on building societies, digital-only challenger banks, and foreign-owned retail banks. Using an indirect estimation approach, systemic risk is measured through balance sheet characteristics, calibrated against listed institutions’ SRISK values. The findings reveal that Nationwide ranks among the top ten systemically important institutions, while several other building societies contribute significantly to aggregate systemic risk. In contrast, digital-only challenger banks exhibit low systemic risk due to high equity ratios and limited interconnectedness, despite rapid growth and persistent financial losses. Santander, a foreign-owned retail bank, emerges as the ninth most systemically important institution<strong>,</strong> with risk levels comparable to systemically-important domestic banks. We conduct extensive robustness checks, including alternative predictors and SRISK specifications, out-of-sample forecasting, and Principal Component Analysis, which confirms the strong co-movement between building societies and the largest UK banks. Finally, we compare SRISK with traditional Z-score metrics to highlight their complementary nature. These findings underscore the need to extend systemic risk frameworks beyond listed entities and support calls to expand the stress testing perimeter to include large non-listed and foreign-owned firms.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"107 ","pages":"Article 102267"},"PeriodicalIF":6.1,"publicationDate":"2025-12-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145797346","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-15DOI: 10.1016/j.intfin.2025.102278
Nikhil Srivastava , David Tripe , Mamiza Haq , Mui Kuen Yuen
This paper studies the effects of financial market development on bank deposits in a cross-country setting. Our empirical evidence shows that investors in developed and developing economies engage with financial markets differently, leading to varying impacts on bank deposits. For instance, in financially developed economies, financial markets typically complement the banking sector by facilitating deposit growth. Conversely, in financially developing economies, financial markets and banks often compete for deposits, thereby constraining bank deposits growth. This dynamic, however, is shaped by country-specific factors such as market concentration and the level of deposit insurance. Moreover, we find that financial market development increases per capita savings, which in turn strengthens bank deposit growth. These findings remain consistent across a range of model specifications and robustness checks.
{"title":"Financial market development and bank deposits","authors":"Nikhil Srivastava , David Tripe , Mamiza Haq , Mui Kuen Yuen","doi":"10.1016/j.intfin.2025.102278","DOIUrl":"10.1016/j.intfin.2025.102278","url":null,"abstract":"<div><div>This paper studies the effects of financial market development on bank deposits in a cross-country setting. Our empirical evidence shows that investors in developed and developing economies engage with financial markets differently, leading to varying impacts on bank deposits. For instance, in financially developed economies, financial markets typically complement the banking sector by facilitating deposit growth. Conversely, in financially developing economies, financial markets and banks often compete for deposits, thereby constraining bank deposits growth. This dynamic, however, is shaped by country-specific factors such as market concentration and the level of deposit insurance. Moreover, we find that financial market development increases per capita savings, which in turn strengthens bank deposit growth. These findings remain consistent across a range of model specifications and robustness checks.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"107 ","pages":"Article 102278"},"PeriodicalIF":6.1,"publicationDate":"2025-12-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145797345","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-09DOI: 10.1016/j.intfin.2025.102266
Wei Wang , Yun Wen , Haoxi Yang , Jiaohui Yang
This study draws on individual-level data from the global football market to examine compensating wage premia for national institutional risk. Using a large panel dataset comprising 243,099 football players across 150 economies from 2010 to 2023, we demonstrate that players employed in economies with high institutional risk receive higher wages as compensation. The main findings remain robust across a series of tests, including alternative measures of institutional risk, additional control variables, different clustering methods, and various subsample analyses. Further analysis reveals that cross-border mobility and institutional adaptability significantly influence the wage premia. Players of higher capability and those from home economies with advanced football development generally possess greater bargaining power and hence secure higher compensation for institutional risk. Likewise, foreign players, particularly those facing larger institutional distance between their home and host economies, command higher wage premia to offset adaptation costs in unfamiliar institutional environments.
{"title":"Institutional risk and wage premia","authors":"Wei Wang , Yun Wen , Haoxi Yang , Jiaohui Yang","doi":"10.1016/j.intfin.2025.102266","DOIUrl":"10.1016/j.intfin.2025.102266","url":null,"abstract":"<div><div>This study draws on individual-level data from the global football market to examine compensating wage premia for national institutional risk. Using a large panel dataset comprising 243,099 football players across 150 economies from 2010 to 2023, we demonstrate that players employed in economies with high institutional risk receive higher wages as compensation. The main findings remain robust across a series of tests, including alternative measures of institutional risk, additional control variables, different clustering methods, and various subsample analyses. Further analysis reveals that cross-border mobility and institutional adaptability significantly influence the wage premia. Players of higher capability and those from home economies with advanced football development generally possess greater bargaining power and hence secure higher compensation for institutional risk. Likewise, foreign players, particularly those facing larger institutional distance between their home and host economies, command higher wage premia to offset adaptation costs in unfamiliar institutional environments.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"107 ","pages":"Article 102266"},"PeriodicalIF":6.1,"publicationDate":"2025-12-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145747844","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-01DOI: 10.1016/j.intfin.2025.102238
Chu Pan , Chentong Sun , Yue Zhang , Yanshuang Li , Muhammad Abubakr Naeem
This study examines the relationship between climate change exposure and the sovereign credit risk of 51 countries from 2010 to 2020. The findings suggest that countries with higher climate change exposure tend to exhibit greater sovereign credit risk. Additionally, GDP per capita and the growth of government debt act as mediating factors, suggesting that climate change exposure is linked to sovereign creditworthiness through economic and fiscal channels. Furthermore, developing countries tend to bear higher credit costs under climate change exposure, whereas sovereign credit risk in developed countries appears more sensitive to such exposure. Lastly, the negative association between climate change exposure and sovereign credit risk appears weaker in countries with stronger governance. This study underscores the significant association between climate change exposure and sovereign credit risk, offering new insights for research on climate-related financial risks.
{"title":"Climate change exposure and global sovereign credit risk","authors":"Chu Pan , Chentong Sun , Yue Zhang , Yanshuang Li , Muhammad Abubakr Naeem","doi":"10.1016/j.intfin.2025.102238","DOIUrl":"10.1016/j.intfin.2025.102238","url":null,"abstract":"<div><div>This study examines the relationship between climate change exposure and the sovereign credit risk of 51 countries from 2010 to 2020. The findings suggest that countries with higher climate change exposure tend to exhibit greater sovereign credit risk. Additionally, GDP per capita and the growth of government debt act as mediating factors, suggesting that climate change exposure is linked to sovereign creditworthiness through economic and fiscal channels. Furthermore, developing countries tend to bear higher credit costs under climate change exposure, whereas sovereign credit risk in developed countries appears more sensitive to such exposure. Lastly, the negative association between climate change exposure and sovereign credit risk appears weaker in countries with stronger governance. This study underscores the significant association between climate change exposure and sovereign credit risk, offering new insights for research on climate-related financial risks.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"107 ","pages":"Article 102238"},"PeriodicalIF":6.1,"publicationDate":"2025-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145692207","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-11-29DOI: 10.1016/j.intfin.2025.102264
Mengxu Xiong , Dongmin Kong
Drawing upon the real-time bilateral conflict data reported in GDELT, we construct a novel index to gauge the geopolitical risk confronted by firms. Utilizing this index, we obtain reliable evidence that geopolitical risks significantly undermine firms’ export product quality, which is plausibly attributable to the reduction in imports of intermediate inputs, the curtailment of R&D investment, the compositional shifts in firms’ export portfolio, and the alteration of demand-side preferences. The findings remain valid across a series of robustness checks and endogeneity tests. Moreover, the adverse impact is more prominent for non-state-owned enterprises (non-SOEs), financially-constrained firms, less productive firms, firms with fewer skilled workers, firms exporting less to OECD countries, and firms operating in less competitive markets. By elucidating the unfavorable consequences of geopolitical risks from a micro perspective, our study may offer suggestions for policymakers and firm managers striving for long-term and stable development in an uncertain environment.
{"title":"Geopolitical risks and firm export product quality","authors":"Mengxu Xiong , Dongmin Kong","doi":"10.1016/j.intfin.2025.102264","DOIUrl":"10.1016/j.intfin.2025.102264","url":null,"abstract":"<div><div>Drawing upon the real-time bilateral conflict data reported in GDELT, we construct a novel index to gauge the geopolitical risk confronted by firms. Utilizing this index, we obtain reliable evidence that geopolitical risks significantly undermine firms’ export product quality, which is plausibly attributable to the reduction in imports of intermediate inputs, the curtailment of R&D investment, the compositional shifts in firms’ export portfolio, and the alteration of demand-side preferences. The findings remain valid across a series of robustness checks and endogeneity tests. Moreover, the adverse impact is more prominent for non-state-owned enterprises (non-SOEs), financially-constrained firms, less productive firms, firms with fewer skilled workers, firms exporting less to OECD countries, and firms operating in less competitive markets. By elucidating the unfavorable consequences of geopolitical risks from a micro perspective, our study may offer suggestions for policymakers and firm managers striving for long-term and stable development in an uncertain environment.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"107 ","pages":"Article 102264"},"PeriodicalIF":6.1,"publicationDate":"2025-11-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145624928","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-11-25DOI: 10.1016/j.intfin.2025.102263
Hendrik Becker
This paper examines the effects of introducing a Central Bank Digital Currency (CBDC) as a direct central bank liability and payment instrument for the general public, using an empirically calibrated simulation model with a particular focus on the micro-foundation of convenience yield parameters. To account for different inflation regimes, we analyze the CBDC demand within a framework of persistently elevated inflation expectations. Specifically, we explore scenarios reflecting an increased target rate and assess how inflation affects cash holdings and the adoption of CBDCs. The model is calibrated using empirical data from the German economy and considers both deposit-like and cash-like CBDCs under varying remuneration structures. We further examine the implications of our findings in the context of commonly discussed holding limits and confirm model results with a representative survey for German households.
{"title":"CBDC demand simulation across high and low inflation regimes","authors":"Hendrik Becker","doi":"10.1016/j.intfin.2025.102263","DOIUrl":"10.1016/j.intfin.2025.102263","url":null,"abstract":"<div><div>This paper examines the effects of introducing a Central Bank Digital Currency (CBDC) as a direct central bank liability and payment instrument for the general public, using an empirically calibrated simulation model with a particular focus on the micro-foundation of convenience yield parameters. To account for different inflation regimes, we analyze the CBDC demand within a framework of persistently elevated inflation expectations. Specifically, we explore scenarios reflecting an increased target rate and assess how inflation affects cash holdings and the adoption of CBDCs. The model is calibrated using empirical data from the German economy and considers both deposit-like and cash-like CBDCs under varying remuneration structures. We further examine the implications of our findings in the context of commonly discussed holding limits and confirm model results with a representative survey for German households.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"106 ","pages":"Article 102263"},"PeriodicalIF":6.1,"publicationDate":"2025-11-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145615148","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-11-23DOI: 10.1016/j.intfin.2025.102262
Qian Li , Shihao Wang , Victor Song
This study examines how controlling shareholders’ overseas residency rights influence the costs of high leverage in China’s A-share market from 2007 to 2021. We find that privately owned firms with controllers holding overseas residency rights incur significantly higher costs of high leverage. The results are robust to alternative specifications, including two-stage least squares, propensity score matching, and alternative measures of both high leverage and residency rights. Mechanism analyses show that overseas residency rights exacerbate stakeholder-driven pressures—particularly from customers, competitors, employees, and suppliers—facing highly leveraged firms. At the same time, this adverse effect is mitigated by formal institutional mechanisms, such as extradition treaties and strong investor protections in the controller’s country of residence, as well as by informal institutions, including corporate integrity culture and political connections. Finally, we show that overseas residency rights amplify the negative impact of high leverage on firms’ investment and profitability.
{"title":"Controlling shareholders Abroad: How overseas residency rights influence the costs of corporate Leverage?","authors":"Qian Li , Shihao Wang , Victor Song","doi":"10.1016/j.intfin.2025.102262","DOIUrl":"10.1016/j.intfin.2025.102262","url":null,"abstract":"<div><div>This study examines how controlling shareholders’ overseas residency rights influence the costs of high leverage in China’s A-share market from 2007 to 2021. We find that privately owned firms with controllers holding overseas residency rights incur significantly higher costs of high leverage. The results are robust to alternative specifications, including two-stage least squares, propensity score matching, and alternative measures of both high leverage and residency rights. Mechanism analyses show that overseas residency rights exacerbate stakeholder-driven pressures—particularly from customers, competitors, employees, and suppliers—facing highly leveraged firms. At the same time, this adverse effect is mitigated by formal institutional mechanisms, such as extradition treaties and strong investor protections in the controller’s country of residence, as well as by informal institutions, including corporate integrity culture and political connections. Finally, we show that overseas residency rights amplify the negative impact of high leverage on firms’ investment and profitability.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"106 ","pages":"Article 102262"},"PeriodicalIF":6.1,"publicationDate":"2025-11-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145615320","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}