Pub Date : 2024-10-10DOI: 10.1016/j.econmod.2024.106907
Yifei Cai , Xiangdong Li , Yahua Zhang
We investigate how changes in political relations between Europe and China affect the oil market. When political relations improve, we find a significant increase in oil demand and prices, accompanied by a decrease in market uncertainty. However, the effects on oil supply and inventory are minimal. Additionally, we compute the forecast error variance decomposition and construct the counterfactual evolution of oil variables in the absence of the impacts of political relation shocks. We find that shifts in Sino–European political relations contribute more significantly to variations in oil market uncertainty than to other oil variables. Finally, we augment the vector autoregression model by incorporating the Sino–US political relationship index. Our findings reveal that this augmentation significantly changes the impacts.
{"title":"Oil market responses to Sino–European political relation shock: Insights after China's world trade organization accession","authors":"Yifei Cai , Xiangdong Li , Yahua Zhang","doi":"10.1016/j.econmod.2024.106907","DOIUrl":"10.1016/j.econmod.2024.106907","url":null,"abstract":"<div><div>We investigate how changes in political relations between Europe and China affect the oil market. When political relations improve, we find a significant increase in oil demand and prices, accompanied by a decrease in market uncertainty. However, the effects on oil supply and inventory are minimal. Additionally, we compute the forecast error variance decomposition and construct the counterfactual evolution of oil variables in the absence of the impacts of political relation shocks. We find that shifts in Sino–European political relations contribute more significantly to variations in oil market uncertainty than to other oil variables. Finally, we augment the vector autoregression model by incorporating the Sino–US political relationship index. Our findings reveal that this augmentation significantly changes the impacts.</div></div>","PeriodicalId":48419,"journal":{"name":"Economic Modelling","volume":"141 ","pages":"Article 106907"},"PeriodicalIF":4.2,"publicationDate":"2024-10-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142531047","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-10-10DOI: 10.1016/j.econmod.2024.106903
Jie Li , Yuzhao Zhang , Yongjie Zhang , Xiong Xiong
This study examines the potential of institutional investor networks in mitigating horizontal agency conflicts, addressing the gap in the regulatory role of institutional investors in concentrated equity markets. Using data on Chinese listed companies from 2007 to 2020, we employ the multiplex network method to investigate the impact of institutional investor networks on earnings management. Our findings reveal a significant negative correlation between institutional investor networks and earnings management. The mechanism analysis indicates that institutional investor networks primarily exert governance through the exit threat rather than through direct intervention and information dissemination. Collectively, our findings elucidate the important role of institutional investors in corporate governance and promote the application of multiplex network theory to the financial field.
{"title":"Institutional investor networks and earnings management: The role of the exit threat","authors":"Jie Li , Yuzhao Zhang , Yongjie Zhang , Xiong Xiong","doi":"10.1016/j.econmod.2024.106903","DOIUrl":"10.1016/j.econmod.2024.106903","url":null,"abstract":"<div><div>This study examines the potential of institutional investor networks in mitigating horizontal agency conflicts, addressing the gap in the regulatory role of institutional investors in concentrated equity markets. Using data on Chinese listed companies from 2007 to 2020, we employ the multiplex network method to investigate the impact of institutional investor networks on earnings management. Our findings reveal a significant negative correlation between institutional investor networks and earnings management. The mechanism analysis indicates that institutional investor networks primarily exert governance through the exit threat rather than through direct intervention and information dissemination. Collectively, our findings elucidate the important role of institutional investors in corporate governance and promote the application of multiplex network theory to the financial field.</div></div>","PeriodicalId":48419,"journal":{"name":"Economic Modelling","volume":"141 ","pages":"Article 106903"},"PeriodicalIF":4.2,"publicationDate":"2024-10-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142441776","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 : 2024-10-09DOI: 10.1016/j.econmod.2024.106906
Zheng Xiao , Qingqing Niu , Feng Yun , Yongwei Ye
Cost stickiness is common in enterprise production and can significantly affect internal resource allocation. Past studies suggest that cost stickiness is more prominent in state-owned enterprises (SOEs). However, these studies have not addressed the impact of state-owned capital (SOC) on the cost stickiness of private enterprises. This study examined the effect of SOC on labor cost stickiness in private firms, employing data from China's private listed firms from 2010 to 2019. Empirical results show that SOC participation in private firms concurrently increased adjustment costs and decreased financing constraints. SOC also significantly exacerbated labor cost stickiness. This relationship was more evident among ordinary employees, competitive industries, and China's central and western regions. The findings demonstrate that SOC participation can harm corporate productivity in the short term but can benefit corporate innovation in the long term.
{"title":"The impact of state-owned capital on labor cost stickiness in private firms: Evidence from China","authors":"Zheng Xiao , Qingqing Niu , Feng Yun , Yongwei Ye","doi":"10.1016/j.econmod.2024.106906","DOIUrl":"10.1016/j.econmod.2024.106906","url":null,"abstract":"<div><div>Cost stickiness is common in enterprise production and can significantly affect internal resource allocation. Past studies suggest that cost stickiness is more prominent in state-owned enterprises (SOEs). However, these studies have not addressed the impact of state-owned capital (SOC) on the cost stickiness of private enterprises. This study examined the effect of SOC on labor cost stickiness in private firms, employing data from China's private listed firms from 2010 to 2019. Empirical results show that SOC participation in private firms concurrently increased adjustment costs and decreased financing constraints. SOC also significantly exacerbated labor cost stickiness. This relationship was more evident among ordinary employees, competitive industries, and China's central and western regions. The findings demonstrate that SOC participation can harm corporate productivity in the short term but can benefit corporate innovation in the long term.</div></div>","PeriodicalId":48419,"journal":{"name":"Economic Modelling","volume":"141 ","pages":"Article 106906"},"PeriodicalIF":4.2,"publicationDate":"2024-10-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142432198","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 : 2024-10-09DOI: 10.1016/j.econmod.2024.106904
Masako Ikefuji , Yoshiyasu Ono
Global warming poses a serious and acute threat to our planet. However, negotiations over the allocation of permissible carbon emissions often lead to conflicts of interest between developed and developing countries. Developing countries claim that global warming results from long-term pollution emissions by developed countries, while developed countries demand that developing countries should make adequate efforts to reduce carbon emissions. Both developed and developing countries generally agree that stricter emission limits will strain their economies due to the associated extra abatement costs. Using a two-country model with wealth preferences, we find that the impacts of a country's emission limit on real consumption and pollution emissions in both countries vary depending on the combination of their business situations. If both countries achieve full employment, one country's stricter emission limit decreases real consumption in both, as expected. However, if one country faces aggregate demand stagnation while the other achieves full employment, a stricter emission limit imposed by the stagnant country increases real consumption in both countries.
{"title":"Environmental policies and stagnation in a two-country economy","authors":"Masako Ikefuji , Yoshiyasu Ono","doi":"10.1016/j.econmod.2024.106904","DOIUrl":"10.1016/j.econmod.2024.106904","url":null,"abstract":"<div><div>Global warming poses a serious and acute threat to our planet. However, negotiations over the allocation of permissible carbon emissions often lead to conflicts of interest between developed and developing countries. Developing countries claim that global warming results from long-term pollution emissions by developed countries, while developed countries demand that developing countries should make adequate efforts to reduce carbon emissions. Both developed and developing countries generally agree that stricter emission limits will strain their economies due to the associated extra abatement costs. Using a two-country model with wealth preferences, we find that the impacts of a country's emission limit on real consumption and pollution emissions in both countries vary depending on the combination of their business situations. If both countries achieve full employment, one country's stricter emission limit decreases real consumption in both, as expected. However, if one country faces aggregate demand stagnation while the other achieves full employment, a stricter emission limit imposed by the stagnant country increases real consumption in both countries.</div></div>","PeriodicalId":48419,"journal":{"name":"Economic Modelling","volume":"141 ","pages":"Article 106904"},"PeriodicalIF":4.2,"publicationDate":"2024-10-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142571234","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}
This paper examines how inflation reacts depending on whether a supply (cost) or demand (markup) shock occurs. Despite their importance, the behaviour of markups remains an open empirical question in the literature. We use data for the US over the 1948q1-2019q3 period, decompose the price index to markups and costs, and employ a small-scale DSGE model to extract identifying size conditions for the coefficient estimates. These are then used in a Markov-switching VAR (MS-VAR) with fixed transition probabilities using an updating step. The empirical exercise shows that three different regimes exist (expansionary, contractionary, supply shock), while the Generalized Impulse Response Functions document that markups appear to be countercyclical and marginal costs are procyclical across all regimes. As such, inflation's reaction to a shock can be less volatile than expected depending on the regime. In addition, larger shocks have a lower and less persistent effect on inflation, because they are more easily identifiable, allowing corrective action to be taken.
本文探讨了通胀在供应（成本）或需求（加价）冲击下的反应。尽管加价非常重要，但其行为仍是文献中一个未解决的实证问题。我们使用美国 1948q1-2019q3 期间的数据，将价格指数分解为加价和成本，并采用一个小型 DSGE 模型来提取系数估计值的识别大小条件。然后将这些条件用于马尔可夫转换 VAR（MS-VAR），该 VAR 采用更新步骤，具有固定的转换概率。实证研究表明，存在三种不同的体制（扩张型、收缩型、供给冲击型），而广义脉冲响应函数表明，在所有体制中，加价似乎是反周期的，而边际成本是顺周期的。因此，通货膨胀对冲击的反应可能比预期的波动要小，这取决于不同的制度。此外，较大的冲击对通货膨胀的影响较小，持续性也较弱，因为它们更容易识别，从而可以采取纠正措施。
{"title":"Examining the behaviour of inflation to supply and demand shocks using an MS-VAR model","authors":"Demetris Koursaros , Nektarios Michail , Christos Savva","doi":"10.1016/j.econmod.2024.106901","DOIUrl":"10.1016/j.econmod.2024.106901","url":null,"abstract":"<div><div>This paper examines how inflation reacts depending on whether a supply (cost) or demand (markup) shock occurs. Despite their importance, the behaviour of markups remains an open empirical question in the literature. We use data for the US over the 1948q1-2019q3 period, decompose the price index to markups and costs, and employ a small-scale DSGE model to extract identifying size conditions for the coefficient estimates. These are then used in a Markov-switching VAR (MS-VAR) with fixed transition probabilities using an updating step. The empirical exercise shows that three different regimes exist (expansionary, contractionary, supply shock), while the Generalized Impulse Response Functions document that markups appear to be countercyclical and marginal costs are procyclical across all regimes. As such, inflation's reaction to a shock can be less volatile than expected depending on the regime. In addition, larger shocks have a lower and less persistent effect on inflation, because they are more easily identifiable, allowing corrective action to be taken.</div></div>","PeriodicalId":48419,"journal":{"name":"Economic Modelling","volume":"141 ","pages":"Article 106901"},"PeriodicalIF":4.2,"publicationDate":"2024-10-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142425579","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 : 2024-10-01DOI: 10.1016/j.econmod.2024.106896
Orcun Kaya
Late payments represent a significant threat to the financial resilience of European SMEs, with wide-reaching implications. While existing literature highlights the detrimental impact of late payments on SME liquidity and insolvency risk, the specific effects on credit availability and loan terms remain underexplored. Using unique firm-level data from 11 European countries over the period 2019–2023, we examine how late payments impact SMEs’ access to finance. We document that SMEs experiencing frequent or occasional late payments face difficulties in accessing finance. The primary mechanism is credit rationing, as banks potentially view cash flow uncertainty as an increased risk, prompting them to restrict lending. The increased risks perceived by banks translate into less favorable loan conditions for SMEs facing late payments, such as higher interest rates and smaller loan amounts. These findings highlight the importance of strengthening and enforcing the Late Payments Directive to address the persistent issue of late payments.
{"title":"The impact of late payments on SMEs’ access to finance: Evidence from credit rationing and loan terms","authors":"Orcun Kaya","doi":"10.1016/j.econmod.2024.106896","DOIUrl":"10.1016/j.econmod.2024.106896","url":null,"abstract":"<div><div>Late payments represent a significant threat to the financial resilience of European SMEs, with wide-reaching implications. While existing literature highlights the detrimental impact of late payments on SME liquidity and insolvency risk, the specific effects on credit availability and loan terms remain underexplored. Using unique firm-level data from 11 European countries over the period 2019–2023, we examine how late payments impact SMEs’ access to finance. We document that SMEs experiencing frequent or occasional late payments face difficulties in accessing finance. The primary mechanism is credit rationing, as banks potentially view cash flow uncertainty as an increased risk, prompting them to restrict lending. The increased risks perceived by banks translate into less favorable loan conditions for SMEs facing late payments, such as higher interest rates and smaller loan amounts. These findings highlight the importance of strengthening and enforcing the Late Payments Directive to address the persistent issue of late payments.</div></div>","PeriodicalId":48419,"journal":{"name":"Economic Modelling","volume":"141 ","pages":"Article 106896"},"PeriodicalIF":4.2,"publicationDate":"2024-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142425917","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-09-30DOI: 10.1016/j.econmod.2024.106897
Jietong Lin, Xin Wang, Mingzhi Xu
The persistence of economic policies is crucial for their effectiveness and economic outcomes. However, debates on industrial policy effectiveness have primarily focused on policy tools and target sectors, with little attention given to policy persistence. This paper addresses this gap by evaluating how policy persistence during subsidy implementation affects policy effectiveness. We measure policy persistence using cosine similarity between vectors reflecting the cross-industry distribution of subsidies over consecutive years and instrument it with the occurrence of abrupt public safety incidents. Our results reveal a significantly positive effect of subsidy allocation persistence on local economic performance. This effect is stronger when local governments are influential or industries need consistent government support and weaker when policy changes are more predictable or local officials are less prone to decision-making mistakes. We further provide micro-level evidence showing that the persistence of industrial policies impacts local economic performance by influencing the activities of local businesses.
{"title":"Industrial policy persistence and local economic performance: The role of subsidy allocation in China","authors":"Jietong Lin, Xin Wang, Mingzhi Xu","doi":"10.1016/j.econmod.2024.106897","DOIUrl":"10.1016/j.econmod.2024.106897","url":null,"abstract":"<div><div>The persistence of economic policies is crucial for their effectiveness and economic outcomes. However, debates on industrial policy effectiveness have primarily focused on policy tools and target sectors, with little attention given to policy persistence. This paper addresses this gap by evaluating how policy persistence during subsidy implementation affects policy effectiveness. We measure policy persistence using cosine similarity between vectors reflecting the cross-industry distribution of subsidies over consecutive years and instrument it with the occurrence of abrupt public safety incidents. Our results reveal a significantly positive effect of subsidy allocation persistence on local economic performance. This effect is stronger when local governments are influential or industries need consistent government support and weaker when policy changes are more predictable or local officials are less prone to decision-making mistakes. We further provide micro-level evidence showing that the persistence of industrial policies impacts local economic performance by influencing the activities of local businesses.</div></div>","PeriodicalId":48419,"journal":{"name":"Economic Modelling","volume":"141 ","pages":"Article 106897"},"PeriodicalIF":4.2,"publicationDate":"2024-09-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142425916","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 : 2024-09-30DOI: 10.1016/j.econmod.2024.106899
Miao Wang , Wenfu Wang
Herein, we used Vector Autoregressive and Dynamic Stochastic General Equilibrium models to examine the relation between central government debt and stock bubbles in China. The empirical findings indicate a considerable negative correlation between central government debt and stock bubbles. The model's results also illustrate that the liquidity substitution effect mainly drives a negative linkage. When commercial banks hold government debt, the effect establishes a connection between central government debt and asset bubbles through commercial banks' balance sheets. Further analysis indicates that countercyclical fiscal policies impact the negative correlation between government debt and stock bubbles. The findings suggest that governments should regulate debt levels to manage asset bubbles.
{"title":"Government debt and stock bubbles in China","authors":"Miao Wang , Wenfu Wang","doi":"10.1016/j.econmod.2024.106899","DOIUrl":"10.1016/j.econmod.2024.106899","url":null,"abstract":"<div><div>Herein, we used Vector Autoregressive and Dynamic Stochastic General Equilibrium models to examine the relation between central government debt and stock bubbles in China. The empirical findings indicate a considerable negative correlation between central government debt and stock bubbles. The model's results also illustrate that the liquidity substitution effect mainly drives a negative linkage. When commercial banks hold government debt, the effect establishes a connection between central government debt and asset bubbles through commercial banks' balance sheets. Further analysis indicates that countercyclical fiscal policies impact the negative correlation between government debt and stock bubbles. The findings suggest that governments should regulate debt levels to manage asset bubbles.</div></div>","PeriodicalId":48419,"journal":{"name":"Economic Modelling","volume":"141 ","pages":"Article 106899"},"PeriodicalIF":4.2,"publicationDate":"2024-09-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142425918","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}
Nominal GDP growth targeting has gained favor over the last few decades in monetary policy literature (e.g., Ireland 2020; Garín et al. 2016; Beckworth and Hendrickson 2020). Calibrated, small-scale New Keynesian DSGE models have supported the proposition that nominal GDP growth (NGDP growth) rate targeting will improve welfare as compared with alternative strategies such as inflation targeting and Taylor rules with standard parameter settings. This paper examines that proposition in the context of a medium-scale New Keynesian model having a financial sector with frictions. In that model, NGDP growth rate targeting does poorly as compared with the Optimal Taylor rule and a wide range of Taylor rule settings leading up to the Optimal (representative agent utility maximizing) Taylor rule. The presence of the financial sector reveals that not only is NGDP growth rate targeting the least successful among the alternative targets and rules in creating welfare in this model; NGDP growth rate targeting also creates dramatically higher volatility of the policy rate and most financial variables.
过去几十年来，名义 GDP 增长率目标制在货币政策文献中越来越受到青睐（例如，Ireland 2020；Garín 等人，2016 年；Beckworth 和 Hendrickson，2020 年）。经过校准的小规模新凯恩斯主义 DSGE 模型支持这样一种主张，即与通货膨胀目标制和泰勒规则等其他策略相比，名义 GDP 增长率目标制将提高福利水平。本文以一个中等规模的新凯恩斯主义模型为背景，探讨了这一命题。在该模型中，与最优泰勒规则以及最优（代表代理人效用最大化）泰勒规则之前的各种泰勒规则设置相比，NGDP 增长率目标制表现不佳。金融部门的存在表明，在该模型中，不仅 NGDP 增长率目标制在创造福利方面是其他目标和规则中最不成功的；NGDP 增长率目标制还会导致政策利率和大多数金融变量的波动性急剧上升。
{"title":"Nominal GDP growth targeting vs. Taylor rules in a model with financial frictions","authors":"Archil Dvalishvili , Mikheil Dvalishvili , Thom Thurston","doi":"10.1016/j.econmod.2024.106900","DOIUrl":"10.1016/j.econmod.2024.106900","url":null,"abstract":"<div><div>Nominal GDP growth targeting has gained favor over the last few decades in monetary policy literature (e.g., Ireland 2020; Garín et al. 2016; Beckworth and Hendrickson 2020). Calibrated, small-scale New Keynesian DSGE models have supported the proposition that nominal GDP growth (NGDP growth) rate targeting will improve welfare as compared with alternative strategies such as inflation targeting and Taylor rules with standard parameter settings. This paper examines that proposition in the context of a medium-scale New Keynesian model having a financial sector with frictions. In that model, NGDP growth rate targeting does poorly as compared with the Optimal Taylor rule and a wide range of Taylor rule settings leading up to the Optimal (representative agent utility maximizing) Taylor rule. The presence of the financial sector reveals that not only is NGDP growth rate targeting the least successful among the alternative targets and rules in creating welfare in this model; NGDP growth rate targeting also creates dramatically higher volatility of the policy rate and most financial variables.</div></div>","PeriodicalId":48419,"journal":{"name":"Economic Modelling","volume":"141 ","pages":"Article 106900"},"PeriodicalIF":4.2,"publicationDate":"2024-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142425578","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 : 2024-09-28DOI: 10.1016/j.econmod.2024.106898
Jian Zhou , Jianglong Yu , Xiaodong Lei
How to effectively discipline related-party transactions has garnered widespread attention from both academia and practice. While extensive literature has examined the factors influencing related-party transactions, it has overlooked the impact of sanctions imposed on peers on the related-party transactions of other firms. Using panel data covering Chinese listed firms from 2002 to 2021, we find that sanctions imposed on peers have a deterrence effect on observing firms. Increasing the certainty or severity of sanctions significantly reduces related-party transactions in observing firms. Mechanism tests demonstrate that media coverage, industry competition, and social trust strengthen this deterrence effect. Further analysis suggests the deterrence effect of sanctions is primarily driven by indirect reputation effects. Additionally, we find that deterrence effect exists in both state-owned enterprises (SOEs) and non-SOEs. Our study sheds light on the efficacy of enforcement in the Chinese capital market and offers important implications for enhancing regulatory efficiency in emerging economies.
{"title":"Do sanctions imposed on peers have a deterrence effect on related-party transactions of observing firms? Evidence from Chinese listed firms","authors":"Jian Zhou , Jianglong Yu , Xiaodong Lei","doi":"10.1016/j.econmod.2024.106898","DOIUrl":"10.1016/j.econmod.2024.106898","url":null,"abstract":"<div><div>How to effectively discipline related-party transactions has garnered widespread attention from both academia and practice. While extensive literature has examined the factors influencing related-party transactions, it has overlooked the impact of sanctions imposed on peers on the related-party transactions of other firms. Using panel data covering Chinese listed firms from 2002 to 2021, we find that sanctions imposed on peers have a deterrence effect on observing firms. Increasing the certainty or severity of sanctions significantly reduces related-party transactions in observing firms. Mechanism tests demonstrate that media coverage, industry competition, and social trust strengthen this deterrence effect. Further analysis suggests the deterrence effect of sanctions is primarily driven by indirect reputation effects. Additionally, we find that deterrence effect exists in both state-owned enterprises (SOEs) and non-SOEs. Our study sheds light on the efficacy of enforcement in the Chinese capital market and offers important implications for enhancing regulatory efficiency in emerging economies.</div></div>","PeriodicalId":48419,"journal":{"name":"Economic Modelling","volume":"141 ","pages":"Article 106898"},"PeriodicalIF":4.2,"publicationDate":"2024-09-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142425992","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}
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