Oliver M. Rui

• Ph.D. In finance
• Chair at China Europe International Business School

We examine the role of relationship-based resource allocations during the approval process of seasoned equity offerings (SEOs) in the Chinese capital market. Our results show that guanxi-based relationships significantly increase the likelihood of SEO approvals, particularly for suspect SEO applicants with abnormal levels of earnings management (EM...

We examine whether social ties between engagement auditors and audit committee members shape audit outcomes. Although these social ties can facilitate information transfer and help auditors alleviate management pressure to waive correction of detected misstatements, cozy interpersonal relations can undermine auditors' monitoring of the financial re...

We analyze whether audit partners suffered damage to their professional reputations with the demise of Zhongtianqin (ZTQ), formerly the largest audit firm in China, after an audit failure enabled a major client, Yin-guangxia (YGX), to fraudulently exaggerate its earnings in a high-profile scandal resembling the Andersen-Enron events in the US. This...

We provide evidence from China that access to loans positively affects the probability that a firm will invest in innovation. However, the positive effect of private debt on innovation investment is significantly moderated by political instability. The cost of political instability on innovation is less severe when the entrepreneur has political co...

Business associations in authoritarian regimes behave systematically different from their counterparts in democratic regimes. Using a unique dataset of Chinese private firms, this paper examines the impacts of joining the most prominent business association in China, the All-China Federation of Industry and Commerce (ACFIC) which was initiated and...

We use a dataset comprising the appointments of commercial bankers as board of directors at Chinese listed firms and find that financially distressed firms are more likely to recruit a commercial banker as a director of the board. The presence of a banker on the board increases access to bank loans, yet many investors react negatively to announceme...

We formulate theory and set forth a first-ever empirical analysis of the impact of board of director gender diversity on the broad spectrum of securities fraud, generating three main insights. First, the examined data show strong evidence consistent with the view that the importance of women on boards in mitigating securities fraud lies in the mech...

In this study, we examine the impact of relative pay (manager pay divided by average worker pay) on a firm's productivity. Using data from a major transitional economy, China, we find that relative pay is negatively associated with high productivity. Our results provide support for the view that workers are alienated when their incomes are far lowe...

Unlike the situation in most developed countries, before the enactment of China's 2006 Bankruptcy Law it was difficult for Chinese-listed companies, which were mostly government owned, to declare bankruptcy. Our analysis of a sample of Chinese financially-distressed companies from 2001 to 2010 reveals that the Chinese affiliates of Big 4 auditors h...

We provide evidence from China that access to loans positively affects the probability that a firm will invest in innovation. However, the positive effect of private debt on innovation investment is significantly moderated by political instability. The cost of political instability on innovation is less severe when the entrepreneur has political co...

In some cultures vast personal wealth is lauded whereas in others, it is viewed with suspicion and contempt. In recent years, a super rich elite of business people has emerged in China, and, given the country’s cultural and socialist past, we believe people are more likely to react negatively to reports of conspicuous wealth. To test our arguments,...

In this paper, we examine the information content of insider transactions in China and analyze how ownership structures shape market reaction to these transactions. We find that the cumulative abnormal return (CAR) to insider purchases is a convex function of the percentage of shares owned by the largest shareholder. Further, the CAR to insider pur...

We investigate two under-explored factors in mitigating the risk of corporate fraud and regulatory enforcement against fraud, namely institutional investors and political connections. The role of institutional investors in the effective monitoring of a firm’s management is well established in the literature. We further observe that firms that have...

We take advantage of the unique institutional background of the B-share stock market in China to explore the impact of foreign investors on auditor choice. Our results show that the percentage of B-share firms audited by Big 4 auditors has decreased with both economic and statistical significance since the segmented B-share market was opened to dom...

State-controlled listed firms in China receive preferential treatment when borrowing from commercial banks; in contrast, private controlled firms rely on informal finance and on trade credit. We argue for and find evidence that private firms located in higher social trust regions use more trade credit from suppliers, extend more trade credit to cus...

Using the theories of the political marketplace and political instability, we examine the effect of political capital on firms’ access to bank loans in relation to the political environment. In particular, we use political capital inequality and political instability to characterize the political environment. Using a nationwide survey of private fi...

We investigate two under-explored factors in mitigating the risk of corporate fraud and regulatory enforcement against fraud, namely institutional investors and political connections. The role of institutional investors in the effective monitoring of a firm’s management is well established in the literature. We further observe that firms that have...

In this paper, we examine the information content of insider transactions in China and analyze how ownership structures shape market reaction to these transactions. We find that the cumulative abnormal return (CAR) to insider purchases is a convex function of the percentage of shares owned by the largest shareholder. Further, the CAR to insider pur...

We investigate whether business groups in China act as internal capital markets, in an environment that is characterized by a high level of government intervention, a weak legal system, and an underdeveloped financial market. We study how institutional factors, such as the ultimate owner and level of market development, shape the role of these busi...

We investigate the association between a firm’s political connections and its merger and acquisition (M&A) performance. Using a sample of M&A deals made by politically connected acquirers and their matched non-connected peers across 22 countries, we find that political connections play an economically significant role in post-merger performance. Th...

We analyze whether audit partners suffered damage to their professional reputations with the demise of Zhongtianqin (ZTQ), formerly the largest audit firm in China, after an audit failure enabled a major client, Yinguangxia (YGX), to fraudulently exaggerate its earnings in a high-profile scandal resembling the Andersen-Enron events in the U.S. This...

This paper examines how ownership type and institutional environment affect firm taxation. Using a sample of Chinese listed firms from 1999 to 2006, we find that private firms enjoy a lower effective tax rate than local state-owned enterprises. In addition, the preferential taxation of private firms is associated with local government’s incentives...

In this study, we analyze two new potential determinants for mitigating fraud committed by firms: institutional investors and political connection. The role of institutional investors in the effective monitoring of firm management has also been well established and we in turn observe that firms with a large proportion of institutional investors hav...

This article investigates the determinants of stock market wealth effect across regions. Using panel data from China, we find that the stock market wealth effect is more prevalent in regions with more stockholders, regions in which households have higher levels of stock ownership and regions in which households have lower incomes.

This study examines the impact of gender difference on corporate fraud in China. Although females are still under-represented in business enterprises, the increasing number of females occupying the post of entrepreneurs and senior executives provides a motivation of the study. By comparing fraud firms and no-fraud firms, there are significant diffe...

This paper studies how culture affects economic behavior. We explore the reactions of investors, governments and entrepreneurs to the publication of the Hurun Rich List to study the impact of egalitarianism within Chinese Confucian culture. We find that when the Rich List is announced, investors react negatively to the companies controlled by the l...

We draw on the many aspects of corporate governance examined in the developed economies and extend them to the Chinese environment. We find evidence of strong linkage and interdependence in the use of different control mechanisms. While there are significant relations between the governance control mechanisms and firm performance, these disappear w...

In China’s state-dominated financial system, many firms, especially non-state-owned or private organizations, face serious restrictions in gaining access to bank and equity market financing. This kind of highly discriminatory financial repression policy has induced some unique post-takeover financing activities, which are consistent with the desire...

Research has found that political connectedness can have both positive and negative effects on firm value. To resolve these mixed findings, we investigate the impact of political ties conditional on ownership for a sample of Chinese firms over the period 1999–2006. We find that private firms with politically connected managers have a higher value a...

This study empirically explores whether, and how, selected attributes of China's two-tier board system affect Chinese firms' performance and earnings informativeness. Using a data base of 4623 firm-year observations over the 1999 to 2003 period, we find some effects that mirror ones reported in non-Chinese settings, such as positive correlations be...

This paper analyzes consumption risk sharing among provinces in the People’s Republic of China (PRC) during 1980–2007. The analysis finds that 9.4% of shocks to gross provincial product are smoothed by the interprovincial fiscal transfer system. This system also cushions a relatively large percentage of province-specific shocks in coastal areas. Us...

In this study, using hand-collected data on FDI for more than 200 cities, the authors examine whether the Lucas paradox of capital exists within the PRC by adopting the dynamic panel data generalized method of moments (GMM) framework to avoid the potential endogeneity issue. Using both provincial- and city-level data, the empirical results show tha...

We examine the effects of corporate lawsuits in China and find that litigation announcements depress the stock prices of both defendant and plaintiff firms. Financially distressed defendants suffer lower stock returns. We find that politically connected defendants are favored in the judicial process: they have higher stock returns and are more like...

This paper investigates the effect of financial deepening on the relationship between trade credit and cash holdings among Chinese listed firms. We first document an asymmetric effect of trade payables and receivables on cash holdings, in that firms hold an additional $0.71 of cash for every $1 of credit payable but use $1 of receivables as a subst...

The Enron/Arthur Andersen scandal has raised concerns internationally about auditor independence, audit quality, and the need for regulatory action such as mandatory auditor rotation. China’s unique institutional features provide us with a setting in which to compare comprehensively the various forms of auditor rotation at different levels (partner...

This paper decomposes consumption risk sharing among provinces in China over the 1980–2007 period. We find that 9.4% of the shocks to gross provincial product are smoothed by the interprovincial fiscal transfer system. This system also cushions a relatively large fraction of the province-specific shocks in the coastal provinces of China. Using a...

In this paper, we generalize Bernard and Thomas’s [Journal of Accounting and Economics 13 (1990), 305]“delayed response” hypothesis as an explanation of post-earnings-announcement drifts. By applying a modified version of Beveridge and Nelson’s technique of decomposing a time-series process of earnings into permanent and temporary components, we es...

We examine legal insider trading activities by directors of companies listed on the Hong Kong Exchange over the period 1993 to 1999. One characteristic of insider trading in Hong Kong is the high frequency of transactions and the large dollar amounts involved. Inside purchases appear to signal and correct undervaluation and inside sales appear to s...

We compare the sensitivity of managerial cash compensation to firm performance, the level of long term managerial incentives, and the sensitivity of CEO turnover to firm performance for three types of state-controlled Chinese firms: A shares (firms incorporated and listed in mainland China), H shares (firms incorporated in mainland China but listed...

We examine the causes and consequences of falsified financial statements in China. Using bivariate probit regression analysis, we find that firms with high debt and that plan to make equity issues are more likely to manipulate their earnings and thus have to restate their financial reports in subsequent years. We also find that corporate governance...

This paper addresses the issue of whether financial deepening has promoted interregional risk sharing in China. It first examines the evolution pattern of overall risk sharing across China as a whole and in its coastal, central and western areas in different periods. The level of risk sharing exhibits a declining pattern over time, most of which is...

We investigate some aspects of top management pay in China's listed firms. We find positive pay and performance sensitivities and elasticities for top executives. In terms of magnitude, these sensitivities are similar to those reported in U.S. firms during the 1970s. However, the pay and performance relation is slightly weaker for firms located in...

We examine directors’ dealing activity around share repurchasing periods in Hong Kong. There are significant insider trading activities before the share repurchasing period. Consistent with the signaling hypothesis, the directors’ purchase activities during the share repurchase period are significantly higher than the expected level while the direc...

We examine the impact of unionization on firms’ tax aggressiveness. We find that firms’ tax aggressiveness is negatively associated with the unionization rate and that firms decrease tax aggressiveness after labor union election wins. These findings are consistent with labor unions influencing managers’ tax aggressiveness in one or both of the two...

We examine the effects of short selling and the combined effects of two forms of informed trading - short selling and insider trading on stock price movements in the Hong Kong stock market. Short selling in Hong Kong is characterized by a high frequency of transactions. We provide empirical evidence that short-selling transactions carry information...

We examine whether labor union contracts are a source of accounting conservatism. We argue that labor unions demand conservatism due to (i) their asymmetric payoff function with respect to firms’ net assets; (ii) their need in estimating firms’ economic rent; (iii) and their need in protecting themselves from managerial misbehavior. Firms are also...

This paper documents different timeliness in disseminating sanction and enforcement information (SEI) by two types of regulatory agencies in China and the different consequences that flow from them. The China Securities Regulatory Commission (CSRC) does not make timely public disclosures of SEI and, instead, leaves it up to the firms to make a publ...

Our study analyses the relations among agency costs, ownership structure, and governance mechanisms in Chinese listed firms. We find that firms with foreign shareholders incur higher agency costs. Legal person shareholders, our proxy for institutional investors, and government ownership have no impact on the level of agency costs. We also find that...

Using brokerage account data from China, we study investment decision making in an emerging market. We find that Chinese investors make poor trading decisions: the stocks they purchase underperform those they sell. We also find that Chinese investors suffer from three behavioral biases: (i) they tend to sell stocks that have appreciated in price, b...

This paper explores the determinants of B-share discounts in the Chinese stock market based on a unique regulatory change in 2001. We find that the B-share discounts declined substantially after the lifting of restrictions on foreign ownership in China, but the H-share discount remained virtually unchanged. Using the intraday data, we find that inf...

This article contributes to the international corporate governance literature by examining factors that affect CEO compensation in China. The article develops models of CEO pay based on an understanding of the unique economic and structural reforms undertaken by the privatized State Owned Enterprises. The findings show that CEO compensation depends...

This study extends previous research by empirically examining how ownership, two-tier board structure, and auditor affect the informativeness of earnings for companies listed in China. We measure the informativeness of earnings by the earnings–returns relation, discretionary accruals, and audit opinion. The results show that ownership concentration...

Given the growth in the importance and popularity of share repurchases, we use an alternative time-series approach to test two hypotheses on the motives for share repurchases and dividends: the flexibility hypothesis and the substitution hypothesis. By investigating both share repurchase and dividend payout policies in the context of a time-series...

This paper finds that only a small proportion of listed companies in Hong Kong voluntarily establish audit committees prior to the implementation of the revised Code of Best Practice, which effectively mandated them. We show that firms with dispersed ownership, a greater proportion of outside directors, and that have a non-Big Five auditor, are ass...

Using brokerage account data from China, we study investment decision making in an emerging market. We find that Chinese investors make poor trading decisions: the stocks they purchase underperform those they sell. We also find that Chinese investors suffer from three behavioral biases: (i) they tend to sell stocks that have appreciated in price, b...

Cross-sectional research finds that corporate financing choices are not only affected by firm and industry factors, but also by country institutional factors. This study focuses on the roles of public governance in firm financing patterns. To conduct a natural experiment that avoids endogeneity, we identify 23 corruption scandals involving high-lev...

Our study examines whether ownership structure and boardroom characteristics have an effect on corporate financial fraud in China. The data come from the enforcement actions of the Chinese Securities Regulatory Commission (CSRC). The results from univariate analyses, where we compare fraud and no-fraud firms, show that ownership and board character...

This paper examines the use of discretionary current accruals by firms that make seasoned equity offers (SEOs). We find evidence suggesting that firms borrow future income to manage earnings in pre-issue years and consequently earnings decrease in post-issue year 2. However, we find no evidence that pre-issue discretionary accruals affect future st...

This study investigates the impact of political rent seeking on corporate financing behaviors in China – a country plagued by corruption problems and high corporate sector debt. Based on 23 high level government officer corruption cases, we identify a set of publicly traded companies whose senior managers engage in bribing the corrupt bureaucrats o...

This paper examines the compensation of CEOs in China's listed firms. First, we discuss what is known about the setting of CEO compensation and then we go on to examine factors that may help explain variations in the use of performance related pay. In China, listed firms have a dominant or controlling shareholder and we argue that the distinct type...

Recent research has argued that political and regulatory environments have a significant impact on corporate governance systems. In particular, countries with poor investor protection laws and weak law enforcement have low levels of corporate governance that manifests itself in substandard financial performance, management entrenchment, and the exp...

This paper examines insider trading around seasoned equity offering (SEO) announcements in Hong Kong. The announcements of private placings (rights offerings) are associated with positive (negative) abnormal stock returns. However, longer-term stock returns are negative for both private placings and rights offerings. In general, insiders are net pu...

This study examines the impacts of directors' dealings on firm liquidity. Consistent with the information asymmetry hypothesis, spread widens and depth falls on insider trading days as compared to non-insider trading days. This result suggests that increased share trading by insiders impairs liquidity. In addition, the spread (depth) measures are p...

This study extends previous research by empirically examining how ownership and board structure affect the informativeness of earnings for companies listed in China. We proxy informativeness of earnings by the earnings-returns relationship and discretionary accruals. The results show that different ownership (government, legal entity, and foreign)...

In the Chinese stock markets, there are A-shares and B-shares. Both share-types have identical cash flow rights but different ownership structures (i.e., A-shares are owned by local Chinese citizens and B-shares are owned primarily by foreigners), causing B-shares to be less liquid relative to A-shares. However, even though B-shares have much wider...

The China Securities Regulatory Commission (CSRC) is the regulatory body that enforces securities laws and regulations in the People’s Republic of China. Somewhat akin to the SEC in the US, the CSRC carries out investigations to identify and prosecute securities fraud. The aim of this study is to provide some empirical evidence on the impact of the...

We examine the effectiveness of price limits on Chinese A shares and investigate the characteristics of those stocks that hit their price limits more frequently. We find that the effect of price limits is asymmetric for the A shares in upward and downward price movements and different for bullish and bearish sample periods. During a bullish period...

Our study examines whether ownership structure and boardroom characteristics have an effect on corporate financial fraud in China. The data come from the enforcement actions of the Chinese Securities Regulatory Commission (CSRC). The results from univariate analyses, where we compare fraud and no-fraud firms, show that ownership and board character...

We examine the effectiveness of price limits on Chinese A shares and investigate the characteristics of those stocks that hit their price limits more frequently. We find that the effect of price limits is asymmetric for the A shares in upward and downward price movements and different for bullish and bearish sample periods. During a bullish period...

In the 1980s and early 1990s, the NASDAQ's success helped to prompt Singapore (SESDAQ), Japan (JASDAQ), Taiwan (TAISDAQ), and South Korea (KOSDAQ) to set up or formalize their own second board markets. In 1999, Malaysia (MESDAQ) and Hong Kong (GEM) followed suit. Given the growing importance of these second board markets, we examine whether there i...

We investigate the ownership restricted B-share price discounts in China, especially after the lifting of ownership restrictions in 2001. Using the intraday Granger causality test, we find significant bi-directional information flows between A -shares and B -shares, which imply an elimination of market segmentation in terms of information flow. How...

We study brokerage account data from China to study investing behavior and trading performance in an emerging market. Chinese stock markets are new, so we assume that Chinese investors are less experienced about investing as compared to investors from more capitalistic oriented societies. We find that Chinese investors exhibit behavioral biases (i....

In the 1980s and early 1990s, the NASDAQ's success helped to prompt Singapore (SESDAQ), Japan (JASDAQ), Taiwan (TAISDAQ), and South Korea (KOSDAQ) to set up or formalize their own second board markets. In 1999, Malaysia (MESDAQ) and Hong Kong (GEM) followed suit. Given the growing importance of these second board markets, we examine whether there i...

We study market segmentation in China's stock markets, in which local firms issue two classes of shares: class A shares available only to Chinese citizens and class B shares available only to foreign citizens. Significant stock price discounts are documented for class B shares. We find that the price difference is primarily due to illiquid B‐share...

This paper examines insider trading around seasoned equity offering announcements in Hong Kong. Consistent with prior studies, we find positive (negative) abnormal returns associated with the announcement of placings (rights offerings). We find evidence that suggests insiders of placing firms delay trading to avoid legal and market penalties. Matur...

About twenty years ago, China set about reforming its moribund economy by introducing certain elements of free market capitalist economics. One reform was the partial privatization of many State Owned Enterprizes (SOEs) and listing the shares in them on the stock exchanges of Shanghai and Shenzhen. The partial private ownership of these companies w...

About twenty years ago, China set about reforming its moribund economy by introducing certain elements of free market capitalist economics. A major reform was the privatization of many State Owned Enterprises (SOEs) and listing the shares in them on the stock exchanges. To date, however, there have been few studies of the effectiveness of the priva...

This paper contributes to the international corporate governance literature by examining factors that affect CEO compensation in China. In particular, we develop models of CEO pay based on an understanding of the unique economic and structural reforms undertaken by the partially privatized state owned Enterprises (SOEs). We find that corporate gove...

This paper examines whether pre-issue discretionary current accruals predict post-issue earnings performance and returns. We find evidence suggesting that offering firms borrow future income to manage earnings in pre-issue years and consequently earnings decrease in post-issue year 2. The information content of pre-issue discretionary current accru...

This study investigates the role of the trading volume in explaining the shift of firm's total and systematic risk when a dividend change is announced. We compared the differential interpretation hypothesis and pre-announcement disagreement hypothesis with more than 20,000 samples collected for 30 years. We found that the total risk generally incre...

This study investigates the dynamic interdependence of the major stock markets in Latin America. Using data from 1995 to 2000, we examine the stock market indexes of Argentina, Brazil, Chile, Colombia, Mexico and Venezuela. The index level series are non-stationary and so we employ cointegration analysis and error correction vector autoregressions...

We draw on the many aspects of corporate governance examined in the developed economies and extend them to the Chinese environment. We find evidence of strong linkage and interdependence in the use of different control mechanisms. While there are significant relationships between the governance control mechanisms and firm performance, these disappe...