The Journal of Finance

Does Stock Liquidity Enhance or Impede Firm Innovation?

Published: 9/12/2014,  Volume: 69,  Issue: 5  |  DOI: 10.1111/jofi.12187  |  Cited by: 1272

VIVIAN W. FANG, XUAN TIAN, SHERI TICE

We aim to tackle the longstanding debate on whether stock liquidity enhances or impedes firm innovation. This topic is of interest because innovation is crucial for firm‐ and national‐level competitiveness and stock liquidity can be altered by financial market regulations. Using a difference‐in‐differences approach that relies on the exogenous variation in liquidity generated by regulatory changes, we find that an increase in liquidity causes a reduction in future innovation. We identify two possible mechanisms through which liquidity impedes innovation: increased exposure to hostile takeovers and higher presence of institutional investors who do not actively gather information or monitor.

Short Selling and Earnings Management: A Controlled Experiment

Published: 5/11/2016,  Volume: 71,  Issue: 3  |  DOI: 10.1111/jofi.12369  |  Cited by: 451

VIVIAN W. FANG, ALLEN H. HUANG, JONATHAN M. KARPOFF

During 2005 to 2007, the SEC ordered a pilot program in which one‐third of the Russell 3000 index were arbitrarily chosen as pilot stocks and exempted from short‐sale price tests. Pilot firms’ discretionary accruals and likelihood of marginally beating earnings targets decrease during this period, and revert to pre‐experiment levels when the program ends. After the program starts, pilot firms are more likely to be caught for fraud initiated before the program, and their stock returns better incorporate earnings information. These results indicate that short selling, or its prospect, curbs earnings management, helps detect fraud, and improves price efficiency.

The Two‐Pillar Policy for the RMB

Published: 10/8/2022,  Volume: 77,  Issue: 6  |  DOI: 10.1111/jofi.13178  |  Cited by: 22

URBAN J. JERMANN, BIN WEI, VIVIAN Z. YUE

This paper studies China's recent exchange rate policy for the renminbi (RMB). We demonstrate empirically that a two‐pillar policy is in place, aiming to balance exchange rate flexibility and RMB index stability via market and basket pillars. We further extend and validate the formulation that incorporates the so‐called countercyclical factor. Theoretically, we develop a flexible‐price monetary model for the RMB in which the two‐pillar policy arises endogenously as an optimal response of the government. We estimate the model by generalized method of moments and quantitatively assess various policy trade‐offs.

Investment Bank Reputation and the Price and Quality of Underwriting Services

Published: 11/10/2005,  Volume: 60,  Issue: 6  |  DOI: 10.1111/j.1540-6261.2005.00815.x  |  Cited by: 430

LILY HUA FANG

The relation between investment bank reputation and the price and quality of bond underwriting services is studied here. After controlling for endogeneity in issuer–underwriter matching, I find that reputable banks obtain lower yields and charge higher fees, but issuers' net proceeds are higher. These relations are pronounced in the junk‐bond category, in which reputable banks' underwriting criteria are most stringent. These findings suggest that banks' underwriting decisions reflect reputation concerns, and are thus informative of issue quality. They also suggest that economic rents are earned on reputation, and thereby provide continued incentives for underwriters to maintain reputation.

Media Coverage and the Cross‐section of Stock Returns

Published: 9/28/2009,  Volume: 64,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2009.01493.x  |  Cited by: 1670

LILY FANG, JOEL PERESS

By reaching a broad population of investors, mass media can alleviate informational frictions and affect security pricing even if it does not supply genuine news. We investigate this hypothesis by studying the cross‐sectional relation between media coverage and expected stock returns. We find that stocks with no media coverage earn higher returns than stocks with high media coverage even after controlling for well‐known risk factors. These results are more pronounced among small stocks and stocks with high individual ownership, low analyst following, and high idiosyncratic volatility. Our findings suggest that the breadth of information dissemination affects stock returns.

Private Equity and Pay Gaps Inside the Firm

Published: 6/8/2026,  Volume: 81,  Issue: 4  |  DOI: 10.1111/jofi.70043  |  Cited by: 2

LILY FANG, JIM GOLDMAN, ALEXANDRA ROULET

Using two decades of French administrative data, we find that post‐leveraged buyout (LBO), target firms reduce within‐firm pay gaps while increasing profitability relative to control firms. Employee turnover drives the pay‐gap reduction. In target and control firms alike, turnovers reduce average pay more at the top of the wage distribution than at the bottom because separated employees are paid more—new joiners less—than similar employees, especially among skilled employees. LBOs amplify this effect through increased turnover among managers. Post‐buyout, p90/p10, gender, age, and managers/non‐managers pay gaps decline by 3%, 9%, 21%, and 4% and the employee pool becomes younger.