Xing Li

Vertical integration has long been viewed as an effective mechanism to address market frictions arising from contractual incompleteness. Moving beyond this traditional economic perspective, this study examines the non-financial consequences of vertical integration through the lens of corporate misconduct. Using a comprehensive sample of U.S. publicly listed firms from 2000 to 2021, we document a positive association between vertical integration and both the incidence and severity of corporate misconduct. The relationship is more pronounced when vertically integrated firms are insulated from supply chain partners demanding greater compliance. In contrast, the effect is attenuated under a stronger external regulatory or monitoring environment, as proxied by regulatory enforcement and media scrutiny. Quasi-natural experiments exploiting exogenous shocks to vertical integration provide causal evidence. Overall, our study suggests that expanded firm boundaries can foster misconduct, an important non-financial consequence of vertical integration.

Prior research indicates that social capital constrains opportunistic behavior and facilitates cooperation in bilateral relationships. We hypothesize that firms conducting business with high social capital customers are perceived by their banks as having lower supply chain risk and document a negative association between suppliers’ loan spreads and the social capital of their major customers. Our cross-sectional analyses show that the negative association is stronger when (1) suppliers make more relationship-specific investments or have weaker bargaining power; and (2) customers’ information environment is more opaque. Further analyses reveal that customers’ social capital has a positive impact on their supplier firms’ nonpricing loan terms. Taken together, our findings indicate that customers’ social capital engenders a spillover effect along the supply chain, enabling suppliers to enjoy lower borrowing costs and more favorable nonpricing loan terms by mitigating the hold-up risks they face. This paper was accepted by Ranjani Krishnan, accounting. Funding: Y. Guan received financial support from Nanyang Technological University [Start-up Grant 021234-00001]. X. Li received financial support from the National Natural Science Foundation of China [Grant 72302180] and the China Postdoctoral Science Foundation [Grants 2025T180187 and 2021M692542]. H. Wu received financial support from City University of Hong Kong. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2024.04778 .

We investigate the role of social capital in mitigating hold-up problems along the supply chain. We find that supplier firms are more willing to make relationship-specific investments (proxied by their citations to customers’ patents) when transacting with customers headquartered in high social capital areas. This effect is more pronounced when the potential for expropriation by the customer is greatest: when the supplier has a weak bargaining position, faces high asset specificity, or the customer is in poor financial condition. High social capital firms are less vertically integrated and are more likely to form (longer-lasting) trading relationships with each other.

Purpose: In this study, the authors explore the association between employee education level and the efficiency of corporate investment using data from a sample of Chinese listed firms during the period from 2011 to 2018. By examining the impact of education on investment efficiency, the authors' study provides valuable insights that contribute to a deeper understanding of the underlying economic mechanisms related to education.Design/methodology/approach: The authors conduct multivariate regression analyses to examine the relationship between investment efficiency (following Richardson, 2006) and the level of employee education, along with a series of control variables. To ensure the reliability of the authors' findings, the authors subject the their results to a comprehensive set of robustness tests, such as a staggered difference-in-difference (DiD) regression approach, an instrumental variable (IV) method and the use of alternative employee education level and investment efficiency measurements.Findings: The findings offer compelling evidence that higher levels of education have a positive impact on firms' investment efficiency, and this effect remains robust across various model specifications and endogeneity considerations. Moreover, the influence of education is more pronounced in firms that prioritize employee training, maintain effective internal communication and offer attractive financial rewards. Furthermore, the results suggest that the relationship between education and investment efficiency is influenced by the firms' business nature and competitive environment. Factors such as business complexity, labor intensity and business location also play a role in shaping the impact of education on investment outcomes.Originality/value: The study emphasizes the crucial role of education in influencing investment decisions and performance within firms. By delving into this previously unexplored area, the authors' research contributes to the existing literature, establishing that the level of employee education is a significant determinant of corporate investment efficiency. This valuable insight has substantial implications for firms aiming to enhance their investment decision-making processes and overall performance. Understanding the positive impact of education on investment efficiency can empower organizations to leverage their human capital effectively and achieve better investment outcomes, ultimately contributing to long-term success and competitiveness in the market.

This paper examines the pricing efficiency of 8‐K filings for events other than earnings announcements. Since these filings provide timely information that is material to investors and explain variations in quarterly returns to a degree similar to other disclosures, understanding how the stock price absorbs their information is important for investors, regulators, and academics. By testing the statistical correlation between the immediate stock returns in response to these filings and subsequent stock returns before, during, and after the forthcoming earnings announcement, we find evidence of investor overreaction to good news but underreaction to bad news in the immediate window. Essentially, the price increases too much for good news but fails to decrease enough for bad news, resulting in overpricing for both. Most of the correction for this overpricing occurs in the period leading up to the forthcoming earnings announcement, while the rest happens during the announcement. Drawing on Miller (1977), we further illustrate that, in the presence of short‐sale constraints, increase in investor disagreement spurred by interpretation difficulty is the most likely mechanism for the observed overpricing. We fail to find sufficient evidence in support of alternative mechanisms, including managerial disclosure strategies, analyst optimistic bias, and retail investor participation. This asymmetric mispricing for non‐earnings 8‐Ks contrasts with the symmetric mispricing commonly found for other types of disclosures, where investors either systematically underreact or overreact to public information. Our results could broadly speak to the pricing of other public information that is inherently difficult to interpret.

This paper investigates the relationship between audit fees and MD&A readability in China. We find that audit fees generally are higher when MD&A readability is lower. However, we find Big4 auditors and industry specialist auditors do not increase audit fees when MD&As are less readable while the other auditors do. We also find that it is the content unique to the reporting firm, rather than standard industry and market content in a MD&A that affects auditor fees. Our results also support that audit risk and audit efforts are two channels through which MD&A readability affects audit fees.

This study investigates the association between employee quality and audit fee. Using data for firm‐level employee quality (as proxied by employee education) from Chinese listed firms from 2011 to 2018, we find that firms operated by high‐quality employees enjoy lower audit charges. The association between employee quality and audit fee is more pronounced in firms with a culture of high integrity. Our 2SLS estimation helps us establish a causal link between employee quality and audit fee. The final validity tests suggest that high‐quality employees contribute to lower audit fee by reducing audit risk and audit effort.