Quasi-natural Experimental Setting Research Articles

The impact of long-term care insurance on the utilization of inpatient service: Evidence and mechanisms in China.

This paper empirically investigates the impact of public long-term care insurance (LTCI) on the utilization of inpatient services and associated expenditures among disabled Chinese individuals, using data from the China Health and Retirement Longitudinal Study from 2011 to 2018. Employing a staggered difference-in-difference approach within a propensity score matching framework (PSM-DID), the study finds that the introduction of LTCI significantly reduces the likelihood of inpatient service usage by 4.2%, the annual number of inpatient admissions by 10.2%, the annual inpatient cost by 16.2%, the out-of-pocket expenses by 20.7%, and the reimbursement expenditure by the public medical insurer by 9.9%. The study further explores the mechanisms underlying these effects and identifies that the Substitution Effect, where care services in community healthcare centers and nursing homes replace hospitalizations, outweighs the Income Effect generated by LTCI benefits. By leveraging the quasi-natural experimental setting of diverse LTCI policies across cities, the study also examines the heterogeneous impacts of LTCI based on household income, eligibility criteria, and reimbursement methods. The findings underscore the positive role of LTCI in controlling medical expenses and alleviating congestion in urban hospitals, offering valuable insights for promoting "Healthy Aging".

The importance of green patents for CDS pricing: The role of environmental disclosures

Corporate green innovation to address global climate change has potential spillover effects through positive financial outcomes. This study examines how the credit market takes green innovation, measured by the approval of green patents, into account to determine the credit default swap (CDS) premia. Using a sample of United States (US) firms from 2002 to 2020, this research finds that the CDS market favourably prices green innovation: firms with more green patents have lower CDS spread, suggesting that the CDS market considers firms' green innovation in their investment decision. While greater firm-provided environmental disclosures boost the effect of green innovation, involuntary environmental exposures by external channels such as print and online media offset the favourable effect of green innovation on CDS spread. The green technology pilot program by the US Patent and Trademark Office in 2009 is exploited as a quasi-natural experimental setting to apply a difference-in-differences analysis, confirming the favourable effect of green innovation on CDS spread. The results remain robust to various sensitivity and other endogeneity tests. Managers intending to reconcile green innovation with their stakeholder value maximisation objective may find the findings interesting.

Analysis of Short-selling Effects Using KOSPI200 and KOSDAQ150 Indexing

Financial regulators often react to crises by restricting short-selling to stabilize the stock market. In response to the COVID-19 pandemic, the Korean government banned short-selling in 2020. Since 2021, it has allowed partial resumption only for stocks indexed in KOSPI200 and KOSDAQ150. This unique short-selling regime in Korea makes newly indexed or excluded stocks experience exogenous variations in their short-selling availability when the constituents of the two indices are updated. Using this quasi-natural experimental setting, we examine the impact of short-selling permission and ban. The results show that short-selling permission enhances stocks’ price efficiencies while short-selling permission and ban do not strongly influence stock return or volatility. Overall, this paper provides empirical evidence supporting the positive role of short-selling, further casting doubts on the reasons behind banning short-selling.

Creditors’ Role in Shaping Asymmetric Cost Behavior: Evidence from Debt Covenant Violation

ABSTRACT This study uses covenant violations as a quasi-natural experimental setting to examine creditors’ roles in shaping corporate cost behavior. Using a regression discontinuity design, I find that cost stickiness experiences a sharp decline following debt covenant violations when control rights are transferred to creditors. The cost stickiness effect is more substantial for borrowers with lower credit ratings and when creditors possess greater bargaining power. The effect is also more pronounced during industry downturns when borrowers have fewer alternative sources of finance. Results are consistent when I use alternative measures of cost stickiness and alternative research designs. Overall, my evidence indicates that creditors play a monitoring role in firms’ cost behaviors and identifies a specific channel (loan covenants) through which the misalignment of incentives can impact cost asymmetry. JEL Classifications: D24; G32; M41.

Does environmental public interest litigation improve the urban land green use efficiency?-Evidence from a quasi-natural experiment in China.

Environmental public interest litigation (EPIL) is a significant part of the judicial system; it is aimed at strengthening judicial protections and safeguarding public interests. Based on the quasi-natural experimental setting of China's EPIL pilot project, this study examines the impact of EPIL on the country's urban land green use efficiency (ULGUE). The findings show that effectively implementing EPIL enhances ULGUE. Specifically, this policy has led to a 6.6% increase in ULGUE in pilot cities, and its impact has grown stronger over time. Mechanism analysis results show that EPIL mainly enhances ULGUE by strengthening environmental supervision and law enforcement, by increasing public participation in environmental governance, and by promoting green innovation and industrial structure upgrades. Furthermore, heterogeneity analysis revealed that the positive effects of this policy implementation are more pronounced in resource-based cities, cities with open environmental information, and cities with high marketization. This paper provides empirical evidence for the effectiveness of environmental governance via EPIL.

Patent collateral and the trajectory of innovation

Taking the Chinese policy project of patent collateral policy as the quasi-natural experiment setting, we investigate the impact of patent collateral policy on the corporate innovation trajectory. We find that patent collateral increases applications of exploitative patent and its proportion in total patent applications, but no significant impact on exploratory innovation is observed. This finding is still robust in a series of robustness tests. The mechanism tests show that the impact of patent collateral promotes firms' exploitative innovation mainly by increasing the accessibility of firms' bank loans. The economic effects test shows that the patent collateral policy can reduce the deviation of analyst forecast and ease corporate financing constraints, which plays an important role in stabilizing capital market expectations. Heterogeneity analysis shows that patent collateral policy mainly promotes exploitative innovation of companies whose senior executives have no financial background, non-high-tech companies and non-SOEs. This paper enriches the research on the innovation incentive effects of patent collateral policy by providing an empirical investigation of the impact of patent collateral policy on corporate innovation trajectory. It helps to provide insights for emerging market countries as to improve patent collateral policy to promote the quality of corporate innovation.

Where there is policy, there is strategy: The impact of a green credit policy on the debt allocation strategy of business groups

The literature on the relationship between green credit and firms' financing strategy focuses largely on standalone firms. Our study extends this literature by examining business groups, focusing on whether and how business groups respond to green credit by proactively adjusting their financing strategy–intra-group debt allocation. Using the promulgation of China's new green credit policy as a quasi-natural experimental setting, our results show that business groups in high–energy consumption sectors have responded to the green credit policy by strategically centralizing borrowing at the parent level, and increased financial constraints and financing costs owing to green credit serve as the mechanisms underlying this causal effect. Analyses on firm heterogeneity illustrate that this effect is more pronounced in groups with private ownership and those without political or bank connections. Moreover, group debt centralization is found to mitigate the negative effects of green credit on R&D investments and investment efficiency. We further document that business groups in high-energy consumption sectors have reduced their carbon emissions since the EECG, and this effect only exists for those without financial constraints. Our study offers a finer-grained understanding of business groups' strategic responses to green credit and sheds new light on the efficiency of their internal capital markets.

Digital economy drives regional industrial structure upgrading: Empirical evidence from China’s comprehensive big data pilot zone policy

With the development of the digital economy, industrial structure upgrading plays an important role in realizing high-quality development. Exploiting the quasi-natural experimental setting provided by the Big Data Comprehensive Pilot Zone (BDCPZ) policy in China in 2016, this study evaluates the impacts of the BDCPZ policies on regional industrial structure upgrading using a combination of propensity score matching and difference-in-differences (PSM-DID) with panel data of 30 regions for the period 2008–2021. The results are as follows: (1) BDCPZ policies significantly promote regional industrial structure upgrading. This finding holds after conducting the placebo test and replacing explained variables. (2) BDCPZ policies enhance upgrading through technological innovation and financial deepening. (3) Heterogeneity analysis shows that the promotional effect of BDCPZ policies on industrial structure upgrading is more obvious in economically developed regions, megacities, and east-central regions; overall, regions with high industrialization benefit more. These findings have important implications: First, they provide new empirical evidence from the perspective of policy evaluation on how the digital economy affects industrial structure upgrading. Second, this study sheds light on the mechanism underlying this relationship, helping us understand how the digital economy can further affect the development of the industrial structure. Third, the policy effect is heterogenous, providing a scientific basis for the government to formulate differentiated implementation policies for different regions. This can help local industrial transformation and upgrading, and economic development in these regions through the implementation of big data and digital technologies.

Carbon emission trading scheme and firm debt financing

This study examines the impact of firms’ participation in an emissions trading scheme (ETS) on their debt financing. Using a unique quasi-natural experimental setting in China, we find that the cost of debt increases and firm access to debt decreases when firms participate in an ETS, which indicates that lenders interpret firms’ participation in an ETS as a potential risk compared to nonparticipation. Further analyses show that the negative effect of participation in an ETS on firm debt financing is more significant for ETS participants that are less able to pass costs on, that operate in regions with less financial marketization, and that are less innovative. For firms that are covered by the national ETS, the restricted access to debt is alleviated for those with experience in a pilot ETS.

Environmental regulation and stock price synchronicity: Evidence from a quasi-natural experiment in China

Prior literature under-theorizes the effect of environmental regulation on firms' stock market outcomes. Our study addresses this gap by investigating the impact of environmental regulation on stock price synchronicity using the promulgation of China's new Environmental Protection Law (EPL) as a quasi-natural experimental setting. Integrating the institution- and resource-based views, our findings show that the new EPL has significantly mitigated high-polluting firms' stock price synchronicity, with this effect being more pronounced for financially constrained firms and less significant for politically connected ones. Our findings also confirm that enhanced environmental and accounting information disclosure serve as underlying mechanisms of the focal relationship. Our study contributes to a finer-grained understanding of the consequences of environmental regulation and presents a more complete account of the determinants of stock price synchronicity.

Mandatory CSR regulation and R&D investments: Evidence from a quasi-natural experiment

This study examines the impact of mandatory CSR regulation on the innovations of Indian firms using the CSR regulation implemented in 2014 as a quasi-natural experiment setting. By employing the Difference in Differences approach, we show that CSR regulation positively impacted firm innovations, proxied using R&D intensity. Moreover, the results remain robust for various specifications and sample selection procedures. This positive relationship is consistent with the resource-based view that CSR is an intangible resource that firms use to gain specialized knowledge about the stakeholders, positively affecting innovations.

How Does Corporate Governance Affect Equity Volatility? Worldwide Evidence and Theory

AbstractWe investigate the causal impact of corporate governance on equity volatility in a quasi-natural experimental setting by exploiting the staggered passage of governance reforms in the past 25 years. Using a sample of 33,831 firms from 48 countries, we find that equity volatility drops by one-fifth following the passage of reforms that increase board independence. This effect is driven by an adjustment in fixed operating costs as managerial expropriation decreases, rather than by changes in firms’ investments, profitability, asset risk, or financing decisions. We rationalize these findings with a model in which minority shareholders are subject to sticky managerial expropriation. (JEL G12, G32, G34)Received October 14, 2021; editorial decision July 26, 2022 by Editor Robert Marquez. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Green lending and stock price crash risk: Evidence from the green credit reform in China

Extant literature has under-theorized the equity market consequences of green credit reform. Our study addresses this gap by investigating the impact of green credit reform on stock price crash risk. Using the promulgation of the 2012 Green Credit Guidelines (GCGs) as a quasi-natural experimental setting, our results show that green lending significantly reduces high-polluting firms’ stock price crash risk; and that the enhanced bank monitoring which green credit brings, both of accounting information quality and of corporate capital structure, serves as the mechanism underlying this causal effect. Cross-sectional analyses reveal that the reduction is more pronounced when banks face greater competition, and for firms without bank-client relationships or political connections. Overall, our study contributes to a finer-grained understanding of the equity market consequences of green lending and sheds new light on the determinants of stock price crash risk.

Social distancing causally impacts the spread of SARS-CoV-2: a U.S. nationwide event study

We assess the causal impact of social distancing on the spread of SARS-CoV-2 in the U.S. using the quasi-natural experimental setting created by the spontaneous relaxation of social distancing behavior brought on by the protests that erupted across the nation following George Floyd’s tragic death on May 25, 2020. Using a difference-in-difference specification and a balanced sample covering the [− 30, 30] day event window centered on the onset of protests, we document an increase of 1.34 cases per day, per 100,000 population, in the SARS-CoV-2 incidence rate in protest counties, relative to their propensity score matching non-protest counterparts. This represents a 26.8% increase in the incidence rate relative to the week preceding the protests. We find that the treatment effect only manifests itself after the onset of the protests and our placebo tests rule out the possibility that our findings are attributable to chance. Our research informs policy makers and provides insights regarding the usefulness of social distancing as an intervention to minimize the spread of SARS-CoV-2.

Does Concurrent Political Leadership Appointment Affect Local Fiscal Allocation in China?

ABSTRACT This study examines how power centralization at the provincial level affects the allocation of fiscal expenditures in China. The authors employ a quasi-natural experimental setting formed by a regulation established in 2002 stating that, in general, provincial Chinese Communist Party (CCP) secretaries should be recommended as candidates for chairmen of the Provincial People’s Congress (PPC). An empirical analysis of provincial panel data finds that Party secretaries concurrently serving as PPC chairmen not only inflates the size of local public expenditures, but also limits fiscal expenditures supporting social welfare and livelihood programs due to a tendency among local leaders to invest more in economic programs that could generate short-term economic growth. Furthermore, power centralization and constrained congressional power could reduce the efficiency of local public expenditures.

Trade Linkage and Transmission of Geopolitical Risks: Evidence from the Peace Progress in 2018

Purpose - Using unexpected changes in geopolitical tensions on the Korean peninsula as a quasinatural experimental setting, we examine whether and how geopolitical risks travel across borders through firm-level imports and exports linkages. We also test whether the effects are driven by either imports or exports and assess whether firms can effectively hedge themselves against geopolitical risks.
 Design/methodology - We focus on a series of unanticipated geopolitical events taken place in Korea in 2018. Making use of the shocks to geopolitical climate, we identify five milestone events toward peace talks. We employ the event studies methodology. We examine heterogenous firm-level stock price reactions around key event dates depending on firms’ exposure to geopolitical risks. As a measure of firms’ exposure to geopolitical risks in Korea, we utilize a text-based measure of firm-level trade links. When a firm announces and discusses its purchase of inputs from Korea or sales of outputs to Korea in their annual disclosure filings, we define a firm to have a trade relationship with Korea and have exposure to Korean geopolitical risks. Similarly, we use a measure of a firm’s hedging policies based on a firm’s textual mention of the use of foreign exchange derivatives in their annual disclosure.
 Findings - We find that U.S. firms that have direct trade links to Korea gained significantly more value when the intensity of geopolitical risks drops compared to firms without such trade links to Korea. The effects are pronounced for firms purchasing inputs from or selling outputs to Korea. We find that the effectiveness of foreign exchange hedging against geopolitical risks is limited.
 Originality/value - We document the international transmission of geopolitical uncertainty through trade linkages. Export links as well as import links serve as important nexus of transmission of geopolitical risks across borders. Hedging strategies involving foreign-exchanges derivatives do not seem to insulate firms again geopolitical risks. With the recent movements of localization and reshuffling of the global value chain, our results suggest a significant impact of geopolitical risks in Korea on the construction of the global value chain.

Buyer’s Bankruptcy Risk, Sourcing Strategy, and Firm Value: Evidence from the Supplier Protection Act

What should a distressed buyer’s sourcing strategy be? We find that this depends on the dynamics in a potential in-court bankruptcy. To establish causality, we use a novel sourcing data set in combination with a unique quasi-natural experimental setting provided by a regulatory shock that significantly strengthened the protection granted to suppliers when a distressed buyer files for bankruptcy: the Supplier Protection Act. We find that, following this regulatory change, the number of suppliers for buyers near financial distress (those most affected by the act, the treated group) increased by nearly 35% relative to financially sound firms (the control group). We also find that this shift allowed distressed buyers to obtain more trade credit, expand inventory holdings, and increase performance, leading to an overall increase in firm value of 7.2%. In turn, these effects led to a sizable reduction in the probability of the affected buyers defaulting and filing for bankruptcy. Our results have important implications for corporate executives: right-sizing the supply base can be critical for buyers near financial distress, and implementing policies to engage and protect suppliers can be the way out of distress. This paper was accepted by Vishal Gaur, operations management. Funding: K. Aral and E. Giambona acknowledge financial support from the Whitman Innovation Analytics 2018 Roadmap Grant, Syracuse University. K. Aral also acknowledges financial support from The Robert H. Brethen Operations Management Institute, Syracuse University. Supplemental Material: The online supplement and data are available at https://doi.org/10.1287/mnsc.2021.4270 .

The impact of carbon emission trading schemes on urban-rural income inequality in China: A multi-period difference-in-differences method

This study evaluates the impacts of China's pilot carbon ETS on urban-rural income inequality. Based on panel data of 273 cities in China from 2010 to 2018, we apply the multiple periods difference-in-differences method in a quasi-natural experiment setting. The results show that carbon ETS can significantly reduce the level of urban-rural income inequality by 8.11% in China. More specifically, the carbon ETS is associated with a 10.23% decrease in income inequality for cities piloted in 2014, but this effect is insignificant for cities piloted in 2017. In addition, the effect of carbon ETS does not noticeably degenerate with the length of exposure to the treatment. Further analysis indicates that the ETS has stronger effects on reducing urban-rural income inequality for the cities with higher CO2 emissions and for those with higher per capita GDP. These findings imply that the implementation of carbon ETS is beneficial for reducing income equality in China and the impact of carbon ETS on income inequality is heterogeneous for different levels of CO2 emissions and different levels of per capita GDP.

Long-term effects of female teachers on pupils’ smoking behaviour later in life

ABSTRACT In Japan, teacher and student is randomly matched in the first year of elementary school. Under the quasi-natural experimental setting, I examine how learning in female teacher homeroom class in the elementary school influence pupils’ smoking behaviour after they become adult. I found that pupils are unlikely to smoke later in life if they belonged to female teacher homeroom class in pupil’s first year of school.

Stock market openness and analyst forecast bias

Biases in analysts’ forecasts can be reduced not only through regulation but also through market mechanisms. In 2014, China launched the Shanghai-Hong Kong Connect program, which opened part of its domestic equity market to foreign investors. The implementation of this program provides a quasi-natural experimental setting to explore whether stock market openness plays a governance role in brokerage firms and minimizes their affiliated analysts' forecast biases. We find that the participation of foreign institutional investors mitigates the forecast biases of affiliated analysts. We also show that these analysts exert more significant effort by conducting more site visits. Our findings suggest that market liberalization can help improving the quality of analysts’ forecasts.