Impacts of home country's institutional environment on OFDI dual margin (2023)

International Review of Economics & Finance, Volume 86, 2023, pp. 46-57

This paper explored the connectedness of dynamic time-frequency between cryptocurrencies and traditional financial assets in China using a weekly dataset from September 4, 2015 to March 4, 2022. We found that cryptocurrencies were the primary contributors to the connectedness system and the primary risk sources for traditional financial assets in China. We also found that cryptocurrencies were the main net transmitters of dynamic spillovers, while China's traditional financial assets were the primary net receivers. In addition, conventional financial assets were more sharply influenced by cryptocurrencies in the short term because the level of spillovers was more significant than in the long term, and spillover fluctuations were intense during the COVID-19 pandemic. These findings provide empirical support for the Chinese State Council's current policy regarding crackdowns on cryptocurrencies.

International Review of Economics & Finance, Volume 86, 2023, pp. 112-126

The cost of equity capital (COEC) is a crucial component of investment decisions and corporate performance evaluations. In the process of corporate financing, an inadequate formal system may lead to the phenomenon of “Bad money drives out good”. While Confucian culture can compensate for the deficiency of the formal system by influencing the value orientation of the actors. Therefore, this paper examines the impact of Confucian culture on firms’ cost of equity capital (COEC) from an informal institutional perspective. Our study presents robust findings that firms headquartered in areas with strong Confucian culture have lower costs of equity capital, and the marketization process has a moderating effect on the relationship between Confucian culture and the COEC. The impact of Confucian culture on the COEC of firms is mainly achieved through three ways: reducing information risk, reducing business risk and mitigating agency problems. Further, foreign cultural shocks will weaken the relationship between Confucian culture and the COEC. These results remain robust after controlling for the endogeneity problem. This study indicates that Confucian culture, as an invisible complementary governance mechanism of the formal system, plays an important and positive role in “reducing the COEC”.

Pacific-Basin Finance Journal, Volume 79, 2023, Article 101988

This study investigates the causal effects of social health insurance on business creation. Since 2007, China has launched a health insurance program for urban residents without formal employment, i.e., the Urban Resident Basic Medical Insurance (URBMI). By exploiting the natural experiment, we conduct a staggered difference-in-differences to show that URBMI significantly enhances new firm creation. Results are robust after addressing endogeneity and using alternative dataset. The above effect is particularly pronounced in regions with high level of intellectual property protection, financial development, human capital, and social trust. Finally, risk taking is a plausible mechanism through which health insurance affects entrepreneurship.

International Review of Economics & Finance, Volume 85, 2023, pp. 59-72

This paper applies the common Markov-switching panel data model from Hamilton and Owyang (2012) to study the similarities and differences across China’s provinces with different industrial linkage characteristics in terms of the timing of entering a contraction. This paper first derives the national business cycles, thus finding short-term contractions not well identified in the existing literature. Second, this paper classifies 30 provinces into four clusters based on the input–output linkages between industries to study the similarities and differences across the provincial business cycles. The results of this paper show a few regional business cycles coincide with the nation’s, but most idiosyncratic cluster contractions exhibit differences in timing around the national contractions. The results also find that contractions of some clusters are likely to spread nationwide. Finally, this paper investigates the reasons for business cycle synchronization.

International Review of Economics & Finance, Volume 86, 2023, pp. 31-45

The outbreak of the COVID-19 pandemic led to a slowdown in the world's energy trade and changes in the use of energy resources. Meanwhile, global conditions are complex and can affect fossil energy spot markets, including crude oil, gasoline, heating oil, and natural gas. In this paper, we conduct comparative research to explore the impact of global conditions on fossil energy spot markets during the COVID-19 crisis based on the GARCH-MIDAS framework. We employ a 2010–2022 sample, which we cut off to investigate the differences before and after COVID-19. In-sample estimation shows that all global indicators are significant for forecasting the volatilities of these fossil energy spot prices. Out-sample forecasts reveal that GEPU and GECON outperform GPR and WIP for forecasting these four markets during the pre-COVID-19 period. After the crisis broke out, these global indicators can provide different forecasting information. Hence, this paper can be helpful for decision-makers to formulate and adjust pertinent policies and investments in the case of extreme emergencies in the future.

International Review of Economics & Finance, Volume 86, 2023, pp. 58-81

This research examines the roles of multidimensional cultural distance including both value and practice on supporting urbanization, focusing on self-employment of internal migrants in China. Prior to examining the effect of cultural distance, we confirm that self-employment is the dominant choice for urban migrants. Building on Hofstede's theory, we calculating the Kogut and Singh Index of cultural values and cultural practices based on survey data set of World Values. After combining these two indices with China Migrants Dynamic Survey data to construct a comprehensive cross-sectional dataset of 521,166 observational samples from 2010 to 2016, we show that both cultural value distance and cultural practice distance have a negative effect on self-employment of internal migrants in China. According to the theory of labor market segmentation, our results reveal that cultural distance is strongly negative associated with the likelihood for internal migrants to engage in self-employment both for opportunity purpose and necessary purpose. From heterogeneity analysis, negative effects of cultural distances exist in the service industry, manufacturing industry, and the Yangtze River Delta. Further discussion shows that cultural value distance also has an indirect influence on individual behavior through cultural practice. Our results suggest that cultural distance prevents migrants from integrating into the local labor market in the form of self-employment.