Kai Li

• Professor at University of British Columbia

We examine why environmental and social (E/S) performance vary across countries and firms, and evaluate the value implications. Using a sample of 33,021 firm-year observations representing 4587 firms from 43 countries over the 2003–2015 period and applying hierarchical linear modeling, we find that individualism is positively associated with firm-l...

We review the literature on debt structure, which is a central element in a firm's capital structure. We first survey both theoretical and empirical research pertaining to debt characteristics—maturity and priority—and debt types—bank loans, corporate bonds, credit lines, commercial paper, and capital leases. We then present comprehensive empirical...

We examine the causal effect of stakeholder orientation on firms’ cost of debt. Our test exploits the staggered state-level adoption of constituency statutes, which allows directors to consider stakeholders’ interests when making business decisions. We find a significant drop in loan spreads for firms incorporated in states that adopted such statut...

Using a novel database of firm patents and board characteristics across 45 countries, we examine both within- and cross-country determinants of board gender diversity and its relation to corporate innovation. Boards are more likely to include women in countries with narrower gender gaps, higher female labor market participation, and less masculine...

Using a new dataset on publicly listed firms in the U.S., this paper provides large sample evidence on the patterns and determinants of debt structure. We first show that debt structure varies substantially between unrated and rated firms and across a wide spectrum of different credit ratings: Large and high credit quality firms tend to have access...

We identify a positive causal effect of healthy working environments on corporate innovation, using the staggered passage of U.S. state-level laws that ban smoking in workplaces. We find a significant increase in patents and patent citations for firms headquartered in states that have adopted such laws relative to firms headquartered in states with...

We compare innovation strategies of public and private firms based on a large sample over the period 1997–2008. We find that public firms’ patents rely more on existing knowledge, are more exploitative, and are less likely in new technology classes, while private firms’ patents are broader in scope and more exploratory. We investigate whether these...

It is well known that firm-level corporate governance practices vary mainly between rather than within countries, but country-level factors such as legal and financial institutions explain less than 50% of this cross-country variation. In this article we show that two dimensions of national culture – individualism and uncertainty avoidance – captur...

We compare chief executive officer (CEO) turnover in public and large private firms. Public firms have higher turnover rates and exhibit greater turnover–performance sensitivity (TPS) than private firms. When we control for pre-turnover performance, performance improvements are greater for private firms than for public firms. We investigate whether...

This paper provides new evidence on the roles and strategies adopted by different types of debtor-in-possession (DIP) lenders: “loan-to-loan” (LTL) lenders—prepetition secured bank lenders providing DIP financing, and “loan-to-own” (LTO) lenders—activist investors (i.e., hedge funds or private equity funds) providing DIP financing. We find that LTL...

In this paper we study CEO contract design employing a unique dataset on privately-held and public firm CEO annual compensation over the period 1999-2011. We first show that CEOs in public firms are paid 30% more than CEOs in comparable privately-held firms. We further show that both private and public firm CEO pays are positively and significantly...

It is commonly believed that women are more likely to seek advice than men; for example, on aspects of health or asking for directions when lost. This paper investigates whether women’s relatively greater propensity for advice seeking extends to important business decisions, specifically those involving corporate takeovers. Consistent with the evid...

We compare CEO turnover in public and large private firms. Public firms have higher CEO turnover rates and exhibit greater turnover-performance sensitivity than private firms. Controlling for pre-turnover firm performance, improvements in performance are greater following CEO turnover for private firms than for public firms. We investigate whether...

In this paper we employ a sample of public and private firms to examine the effect of public equity markets on innovation strategies. We show that public firms’ patents are less exploratory and more exploitative than private firms’ patents. Our results, based on propensity score-matching, the IPO firms and their matched control firms, and the instr...

In this paper, we contrast the universalist and cultural perspectives on “good” corporate governance practices. Using a new database from Governance Metrics International featuring highly granular measures of corporate governance practices across a large number of countries for the period 2006-2011, we find that the national cultural dimension of i...

This paper examines the association between the presence of female directors on a corporate board and mergers and acquisitions (M&As). Using acquisition bids initiated by S&P 1500 firms during the period 1997-2009, we find that each ten percent of female directors on a board is associated with a reduction in the number of a company’s acquisition bi...

We provide one of the first large sample comparisons of cash policies in public and private U.S. firms. We first show that despite higher financing frictions, private firms hold, on average, about half as much cash as public firms do. By examining the drivers of cash policies for each group, we are able to attribute the difference to the much highe...

Employing public and private firm CEO pay data made available through mandated SEC disclosures over the period 1999 to 2008, we first show that after controlling for firm and CEO characteristics, public firm CEOs are paid modestly more than private firm CEOs, with a pay premium of about 20%, and that public firm CEOs are given more on-going equity...

Using a large and unique patent-merger dataset over the period 1984 to 2006, we show that companies with large patent portfolios and low R&D expenses are acquirers, while companies with high R&D expenses and slow growth in patent output are target firms. Further, technological overlap between any two firms has a positive effect on transaction incid...

This paper examines debt structure using a new and comprehensive database on types of debt employed by public U.S. firms. We find that 85% of the sample firms borrow predominantly with one type of debt, and the degree of debt specialization varies widely across different subsamples — large rated firms tend to diversify across multiple debt types, w...

We investigate the role of national culture and earnings management in corporate risk-taking. First, we postulate that culture influences managerial risk-taking directly through its effect on individual decision-making and indirectly through its effect on a country’s formal institutions and a firm’s managerial practices. Second, we postulate that t...

This paper examines debt structure using a new and comprehensive database on types of debt employed by publicly listed U.S. firms. We find that specialization in a single debt type is a widespread phenomenon, and that the degree of specialization varies widely across different subsamples — large rated firms tend to diversify across multiple debt ty...

We provide new evidence on the debate whether CEOs in public U.S. firms are significantly overpaid using their counterparts in private U.S. firms over the period 1999 to 2008. Using public and private firm CEO pay data made available through mandated SEC disclosures, we first show that after controlling for firm and CEO characteristics, public firm...

Adjustment of behavior to maintain risk, known as risk homeostasis, has previously been studied in a variety of psychological, health, social and economic contexts. This paper examines the evidence for risk homeostasis in corporate financial decisions involving mergers and acquisitions (M&As). We first show that when bidder corporations’ risks decl...

We investigate the role of national culture in corporate risk-taking. We postulate that culture influences corporate risk-taking both through its effect on managerial decision-making and through its effect on a country’s formal institutions. Further, we postulate that the influence of culture is conditioned on the extent of managerial discretion as...

We study large discrete decreases in CEO pay and compare them to CEO forced turnover. The determinants are similar, as are the performance improvements after the action. After the pay cut, the CEO pay-for-performance sensitivity is abnormally high, such that the CEO can restore his pay level by reversing the poor performance. After either a pay cut...

We study the way in which information about corporate decisions is reflected in stock prices. In the corporate finance literature a typical assumption is that managers have superior information that is revealed to the market by their corporate decisions and personal equity trades. In contrast, many market microstructure models assume that corporate...

This paper examines debt specialization by publicly listed U.S. firms and offers some explanations using a new and comprehensive database on debt structure. Our main findings are that specialization in a single debt type is a prevailing phenomenon among U.S. firms, and that the degree of specialization varies widely across different subsamples – la...

This paper studies the presence of hedge funds in the Chapter 11 process and their effects on bankruptcy outcomes. Hedge funds strategically choose positions in the capital structure where their actions could have a bigger impact on value. Their presence, especially as unsecured creditors, helps balance power between the debtor and secured creditor...

This paper examines the influence of female directors on corporate boards on mergers and acquisitions (M&As). Using acquisition bids initiated by S&P 1500 firms during 1997-2009, we find that each ten-percent representation of female directors on a corporate board is associated with a reduction in the number of a company's acquisition bids by 7.5 p...

Cross-holdings are created when a shareholder of one firm holds shares in other firms as well, and cross-holdings alter shareholder preferences over corporate decisions that affect those other firms. Prior evidence suggests that such cross-holdings explain the puzzle of why shareholders allow acquisitions that reduce the value of the bidder. Conduc...

In this paper, we provide one of the first large sample comparisons of cash policies in public and private US firms. We first show that on average private firms hold less than half as much cash as public firms do. These higher cash holdings are partially caused by the fact that public firms add more to their cash reserves in a given year, even cont...

We investigate the role of firms’ country of origin in financial leverage decisions using data on foreign joint ventures in China. We hypothesize that national culture enters the joint optimization process leading to foreign joint ventures’ leverage decisions and that it affects leverage decisions both directly and indirectly. Using cultural values...

Young male CEOs appear to be combative: they are 4% more likely to be acquisitive and, having initiated an acquisition, they are over 20% more likely to withdraw an offer. Furthermore, a young target male CEO is 2% more likely to force a bidder to resort to a tender offer. We argue that this combative nature is a result of testosterone levels that...

This article provides a comprehensive analysis of a new and increasingly important phenomenon: the simultaneous holding of both equity and debt claims of the same company by non-commercial banking institutions (“dual holders”). The presence of dual holders offers a unique opportunity to assess the existence and magnitude of shareholder-creditor con...

We document the magnitude and determinants of institutional shareholder cross-holdings. Cross-holdings are created when a shareholder of one firm holds shares in other firms as well. We find that institutional cross-holdings have risen rapidly over the last twenty years. Cross-holdings are higher the more alike two firms are on a number of dimensio...

The idea of adjusting behavior to maintain risk is known as "risk homeostasis." This paper considers the implications of this idea in the context of mergers and acquisitions (M&As). Using a sample of M&As over 1980-2007, we first show that when bidders' risks happen to decline relative to industry-and size-matching non-bidding peer firms prior to a...

We investigate the role of firms' country of origin in financial leverage decisions using data on foreign joint ventures in China. We hypothesize that national culture enters the joint optimization process leading to foreign joint ventures' leverage decisions and that it affects leverage decisions both directly and indirectly. Using cultural values...

This paper provides a comprehensive analysis of a new and increasingly important phenomenon: the simultaneous holding of both equity and debt claims of the same company by non-bank institutional investors ("dual holders"). The presence of dual holders offers a unique opportunity to assess the existence and magnitude of shareholder-creditor conflict...

We investigate the role of managers' country of origin in leverage decisions using data on foreign joint ventures in China. By focusing on foreign joint ventures in a single country, we are able to hold constant the financing environment, eliminate the effects of formal institutions in the foreign managers' home country, and consequently reveal the...

We investigate the role of national culture in corporate risk-taking using firm-level data from 35 countries. We identify three dimensions of national culture predicted to influence corporate risk-taking: harmony, individualism, and uncertainty avoidance, and we isolate the effects of firm-level and country-level variables by using a hierarchical l...

We examine how informational asymmetries affect firms' dividend policies. We find that firms that are more subject to information asymmetry are less likely to pay, initiate, or increase dividends, and disburse smaller amounts. We show that our main results are not driven by our sample and that our results persist after accounting for the changing c...

This paper examines whether the presence of women directors on corporate boards plays a role in the pricing and form of mergers and acquisitions. We show that the bid premium over the pre-announcement target share price is statistically and economically smaller the larger is the proportion of women on the bidder and target boards, provided that the...

We investigate the influence of shareholder-manager incentive alignment on the cost of debt. We address this question in a sample of dual-class firms, where managerial voting rights and cash-flow rights can be separated. We find the cost of debt financing increases in managerial voting rights and decreases in cash-flow rights. In contrast, leverage...

We study the share privatization process in China to investigate whether and how the removal of market frictions is associated with efficiency gains. Prior to the reform, domestic A-shares were divided into tradable and non-tradable shares. As a result of the reform, holders of non-tradable shares compensated holders of tradable shares in order to...

Within a cost–benefit framework, we hypothesize that independent institutions with long-term investments will specialize in monitoring and influencing efforts rather than trading. Other institutions will not monitor. Using acquisition decisions to reveal monitoring, we show that only concentrated holdings by independent long-term institutions are r...

We employ a unique data set to explore the role of ownership structure and institutional development in debt financing of non-publicly traded Chinese firms. We show that state ownership is positively associated with leverage and firms’ access to long-term debt, while foreign ownership is negatively associated with all measures of leverage. Surprisi...

We study investment restrictions in a dynamic, two-country, two-good general equilibrium model. The issues that we are concerned with are the impact of the investment restrictions on the cost of capital, the asset returns' volatilities, the international stock market co-movement, and the optimal timing for removing the investment restrictions. On t...

We identify important conflicts of interests among shareholders and examine their effects on corporate decisions. When a firm is considering an action that affects other firms in its shareholders' portfolios, shareholders with heterogeneous portfolios may disagree about whether to proceed. This effect is measurable and potentially large in the case...

We develop a general equilibrium model to understand the extent of welfare gain from removing market friction and the specific way through which the gain is shared among market participants. We use the reform of split share structure in China as a natural experiment to examine the existence and the sharing of welfare gain. Prior to the reform, the...

Debt, and in particular, short-term debt have the potential to discipline managers. We examine the role of the board in making financing decisions that provide this discipline. Specifically, given a firm's characteristics, we predict that stronger boards will force the firm to hold more debt and more short-term debt. Employing a rich dataset of boa...

We explore how compensation policies following mergers affect a CEO's incentives to pursue a merger. We find that even in mergers where bidding shareholders are worse off, bidding CEOs are better off three quarters of the time. Following a merger, a CEO's pay and overall wealth become insensitive to negative stock performance, but a CEO's wealth ri...

Purpose This study seeks to examine the role of firm characteristics and insider private information in affecting Canadian firms’ repurchase decision and the associated announcement period stock return. Design/methodology/approach Past studies of announcement returns employ a standard event‐study methodology, which produces biased parameter estima...

This paper studies the split share structure reform in China. Prior to the reform, the domestic A-shares are divided into tradable and non-tradable shares with the same cash flow and voting rights. Under the reform, the holders of non-tradable shares negotiate with the holders of tradable shares in order to make their shares tradable. We develop a...

"We examine how informational asymmetries affect firms' dividend policies. We find that firms that are more subject to information asymmetry are less likely to pay, initiate, or increase dividends, and disburse smaller amounts. We show that our main results are not driven by our sample and that our results persist after accounting for the changing...

The unequal division of takeover gains between acquirers and targets makes toeholds, i.e., shares acquired prior to a takeover bid, an important source of profit for acquirers. We show that diversified shareholders who hold equity stakes in both the acquiring and the target firm should play a role similar to that of toeholds. A complicating factor...

Debt, and in particular, short-term debt have the potential to discipline managers. We examine the role of the board in making financing decisions that provide this discipline. Specifically, given a firm's characteristics, we predict that stronger boards will force the firm to hold more debt and more short-term debt, and that the effect of the boar...

This paper presents new evidence on the role of macroeconomic and institutional factors in equity market development and on the sources of equity market growth. Using panel data on 33 countries, I find that development of financial intermediaries and trade openness are positively associated with equity market size, and that development of financial...

We present a first-time comparison of the principles-based corporate governance regime in Canada and the rules-based corporate governance regime in the United States from a theoretical, legal and empirical perspective. This comparison is of value to both firms considering a listing in Canada and/or the United States and institutional investors who...

Corporate finance decisions are not made at random, but are usually deliberate decisions by firms or their managers to self-select into their preferred choices. This chapter reviews econometric models of self-selection. The review is organized into two parts. The first part reviews econometric models of self-selection, focusing on the key assumptio...

We examine CEO pay and incentives around major corporate investments to explore whether compensation policies in investing firms counter or exacerbate the divergence in interests between CEOs and shareholders. We find that CEOs are richly rewarded for growth through acquisition, and to a lesser extent for growth via capital expenditure. Even in mer...

This paper presents both the time-series and cross-country evidence on the growth of global equity markets and attempts to shed some light on the sources of equity market growth. Using data on 33 countries, I find that development of financial intermediaries and openness to trade are positively associated with the size and activity of equity market...

We study the role of institutional investors in corporate governance using the acquisition decision as our experimental setting. Specifically, we test two related hypotheses: the monitoring hypothesis and the better-informed investor hypothesis. We find evidence that managers of firms with larger institutional presence make better acquisition decis...

Seasoned equity offerings involve two significant events: registration followed by the decision to complete the issue or withdraw the registration. We present an empirical analysis of the interaction between seasoned equity issues, insider trading and the incorporation of information in prices around these two events. We find that the manager moves...

We examine the pricing of initial public offering (IPO), seasoned equity offering (SEO) and post-chapter 11 firms using a stochastic frontier methodology. The stochastic frontier framework allows us to model "inefficiency" or the difference between a firm's maximum predicted and its actual market capitalization at the time of the offering as a func...

The goal of this study is to address directly the predictive value of birth inputs and outputs, particularly birth weight, for measures of early childhood development in a simultaneous equations modelling framework. Strikingly, birth outputs have virtually no structural/causal effects on early childhood developmental outcomes, and only maternal smo...

Corporate takeovers are major investments that present managers with opportunities that can exacerbate the conflicts of interest between managers and shareholders, and thus present an ideal setting to explore the relationship between incentives and the efficiency of corporate investment decisions. This study examines CEO compensation and incentives...

This study offers a simultaneous equations model of the birth process with seven endogenous variables: four birth inputs (maternal smoking, maternal drinking, first trimester prenatal care, and maternal weight gain) and three birth outputs (gestational age, birth length, and birth weight). The data are taken from the National Longitudinal Survey of...

This paper presents a new model of the birth process of Native Americans with seven endogenous variables: four birth inputs maternal smoking (S), drinking (D), prenatal care (PC), and weight gain (WG), and three birth outputs gestational age (G), birth length (BL), and birth weight (BW). The model is a seven-equation simultaneous model with three e...

We take a closer look at the question of whether dual traders in futures markets are indeed informed traders. Underpinning this question is the intuition that a dual trader's decision to trade on his own account is not random, but is endogenously determined by his expectations of trading profits related to this decision. We employ a simultaneous eq...

This study examines the relationship between maternal behavior during pregnancy, birth outcomes, and early childhood development. Specifically, in the context of four measures of maternal behavior during pregnancy (maternal smoking, drinking, prenatal care, and maternal weight gain), three measures of birth outcome (gestational age, birth length, a...

This study examines the role of insider holdings in affecting the decision to announce a repurchase and the associated announcement period stock returns using a conditional event study methodology. We find that firms are more likely to buy back shares if the insiders have large shareholdings and we find that the announcement period returns are grea...

One striking feature of international portfolio investment is the extent to which equity portfolios are concentrated in the domestic equity market of the investor - the home bias puzzle. In this paper, I examine the role of investors' perception of the risk of foreign investment on their portfolio choices. The expected returns and risk of foreign i...

We apply Bayesian methods to study a common vector autoregression (VAR)-based approach for decomposing the variance of excess stock returns into components reflecting news about future excess stock returns, future real interest rates, and future dividends. We develop a new prior elicitation strategy, which involves expressing beliefs about the comp...

Using proprietary audit trail transaction data compiled by the Commodity Futures Trading Commission, we investigate at the individual trader level (1) the timing and (2) the determinants of dual traders’ personal trades. Our analysis reveals an absence of any trade timing by dual traders in relation to the execution of their customers’ orders. Furt...

This paper examines cross-country patterns of growth in equity markets. It adopts a flexible valuation model that allows for the breakdown of changes in equity market capitalization into growth in valuation inputs, changes in valuation technology, and improvement in valuation e#- ciency. Using panel data on 16 developed markets and 16 emerging mark...

This paper examines the international diversification benefits when short selling is not allowed. We show that the benefits remain substantial for US equity investors when they are prohibited from short selling in emerging markets. This result is also true for emerging market stocks that are “investable ” for US investors. In contrast, the benefits...

We develop a simultaneous equations model with four birth inputs (maternal smoking, maternal drinking, first trimester prenatal care, and maternal weight gain), three birth outputs (gestational age, birth length, and birth weight), and twenty-four exogenous variables, and employ the National Longitudinal Survey of Youth in the US to study the birth...

This study offers a simultaneous equations model of the birth process with seven endogenous variables: four birth inputs (maternal smoking, maternal drinking, first trimester prenatal care, and maternal weight gain), and three birth outputs (gestational age, birth length, and birth weight). Our analysis conditions on twenty-four exogenous variables...

We examine the pricing of initial public offering (IPO) and seasoned equity offering (SEO) firms using a stochastic frontier methodology. The stochastic frontier framework models the difference between the maximum possible value of the firm and its actual market capitalization at the time of the offering as a function of observable firm characteris...

This paper examines the international diversification benefits subject to portfolio constraints—in particular, constraints on short selling. We show that the international diversification benefits remain substantial for U.S. equity investors when they are prohibited from short selling in emerging markets. This result is robust to investment restric...

This study offers a simultaneous equations model of the birth process with seven endogenous variables: four birth inputs [maternal smoking (S), maternal drinking (D), first trimester prenatal care (PC), and maternal weight gain (WG)], and three birth outputs [gestational age (G), birth length (BL), and birth weight (BW)]. Our analysis conditions on...

Using an audit trail transaction data set compiled by the Commodity Futures Trading Commission (CFTC), we seek to ascertain directly the motives behind dual traders’ own account trading and whether or not they are informed traders. We estimate our system of equations on each of the 101 most active dual traders in the data, using the Markov chain Mo...

This study offers a simultaneous equations model of the birth process with seven endogenous variables: four birht inputs, and three birth outputs. Our analysis conditions on twenty-four exogenous variables. The data are taken the NLSY. Separate analyses are performed on five different groups: Whites, Blacks, Hispanics, and Native Americans.