Greenwashing's Dilemma: Dynamics of ESG Facades on Firm Value
ESG engagement allows firms to achieve sustainable development, but greenwashing through selective disclosure creates a "bad money drives out good" dilemma in ESG dissemination. This paper demonstrates that ESG greenwashing exerts a dual effect on firm value among Chinese Ashare listed firms, with a short-term positive impact followed by a long-term adverse effect. Using dynamic panel models, we find a positive effect of greenwashing on firm value by alleviating firms’financing constraints. However, the relation reverses in the subsequent two years, which is due to weakened innovation capacity via reduced R&D and reputation discounts. These findings enrich signaling and stakeholder theories with time-varying insights. It offers practical guidance for identifying greenwashing, enhancing regulatory frameworks, and promoting true ESG practices.
Jiahao Li, You Zhou, Yingjie Lan
Working Paper | No. 20251103 |
Keywords: greenwashing, ESG, firm value, financing constraint, research and development
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Factors or Fake? A New Look at Anomalies and the Replication Crisis
Based on the insight that declaring an anomaly not spanned presumes knowledge of the true SDF, we reverse conventional testing: discovery now corresponds to returns being spanned by a given factor set. We develop a Bayesian procedure that, for single anomalies and sequentially for pairs, triplets, and larger sets, computes posterior spanning probabilities and selects discoveries while controlling the expected false discovery rate (EFDR) at each stage. Applied to the U.S. dataset of Jensen et al. (2023) comprising 153 anomalies, our method classifies 132 as spanned. The evidence tempers claims of new factors and highlights redundancy and masking in the anomaly zoo.
Siddhartha Chib*, Shuhua Xiao, Lingxiao Zhao
Working Paper | No. 20251102 |
Keywords: Bayesian multiple testing, expected false discovery rate control, model uncertainty, posterior spanning probabilities, spanned anomalies
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Cannibalization, Competition, and New Product Introductions: Evidence from the Pharmaceutical Industry
We study how cannibalization concerns shape firms’ product launch decisions. In the pharmaceutical industry, the threat of generic competitor entering a branded product’s market reduces cannibalization concerns for pipeline launches, while having limited impact on the standalone value of pipeline product. We find that such competitive threats accelerate pipeline launches, which in turn decrease sales of the threatened product in a period before the competitor's actual market entry. Our findings underscore how competitive pressure accelerates the commercialization of new products by reducing cannibalization costs, fostering creative destruction and strengthening the link between innovation and growth.
Yuanfang Chu, Sudipto Dasgupta, Fangyuan Ma
Working Paper | No. 20251101 |
Keywords: cannibalization, product Launch, competition, creative destruction
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Visibly Fair Mechanisms
Priority-based allocation often requires eliminating justified envy, making serial dictatorship (SD) the only non-wasteful direct mechanism with that property. However, SD’s outcomes can conflict with the policymaker’s objectives. We introduce visible fairness, a framework where fairness is evaluated using coarser information. This is achieved by designing message spaces that strategically conceal information that could render desired allocations unfair. We characterize these mechanisms as generalizations of SD, establish conditions for strategy-proofness, and show how to implement distributional constraints. This creates a new trade-off: achieving distributional goals may require limiting preference elicitation, forgoing efficiency gains even when compatible with the constraints.
Inácio Bó, Gian Caspari, Manshu Khanna
Working Paper | No. 20250905 |
Keywords: matching theory, market design, indirect mechanisms
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Housing, Health, and Life Expectancy Inequality in China
We document large inequality in life expectancy at age sixty across cities and sectors of employment in China using the regression discontinuity approach. The life expectancy is higher in larger cities and among public sector retirees, with a gap of over ten years between rural residents and tier-one city public sector retirees. To understand the inequality, we develop a dynamic optimization model of health investment and housing choice for retirees. We show that the inequality is largely attributable to the heterogeneity in income, in the coverage of publicly funded health insurance, and in the housing investment market. Counterfactual experiments indicate that equalizing publicly funded medical coverage will significantly reduce life expectancy inequality. A decline in house prices will reduce life expectancy more in tier-two and tier-three cities.
Yushan Hu, Penglong Zhang, Guozhong Zhu*
Working Paper | No. 20250904 |
Keywords: health production, medical insurance coverage, housing costs, life expectancy inequality
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How Technological Innovation Shapes Financial Innovation: Substitution Effects Versus Knowledge Diffusion
The innovation of new financial products, processes, and services is a key driver of economic development and technological progress. Yet, the issue of how new technology itself affects financial innovation activity is not well understood. We argue that, although new technologies can spur financial innovation via knowledge spillovers, they can also lead to the “crowding out” of financial innovation by increasing the relative profitability of competing investment opportunities. To test our hypotheses, we use time-series data during 2005-2019 on the occurrence of major waves of non-financial innovation and their impact on firms’ financial patenting and the hiring of financial inventors. We find evidence of aggregate-level crowding-out in the earlier part of the sample: firms tend to shift from financial to non-financial patenting following the onset of an innovation wave.
Mark A. Chen*, Sophia Hu, Joanna Wang, Qinxi Wu
Working Paper | No. 20250903 |
Keywords: technological innovation, financial innovation, substitution effects, knowledge diffusion, patents, inventors, human capital
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Fine Control of Conservatism for Robust Optimization by Adjustable Regret
Overconservatism has long been recognized as a major issue of robust optimization, despite its major advantages of tractability, performance guarantee, and limited information. A new criterion based on adjustable regret is proposed to address this issue by adapting the level of conservatism to the environment, while maintaining all the aforementioned advantages. The level of conservatism can be fine-tuned by maximizing the reward guarantee for scenarios representative of opportunities provided by experts as most likely values, leading to a simple heuristic to best catch opportunities. This criterion also supports a new approach to competitive ratio analysis that is applicable even to multistage problems. The new criterion is then applied to the one-way trading problem with analytical solutions, from which the competitive ratio is easily derived by the new approach.
Yingjie Lan*
Working Paper | No. 20250902 |
Keywords: robust optimization, decision criteria, overconservatism, convex conjugate, one-way trading
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United on Divisive Waters: Decentralization of Irrigation and Conflict in India
Arguments for decentralizing local public goods often emphasize productivity gains, but such reforms can also shape social cohesion, particularly in diverse communities and for high-stake resources. Exploiting the staggered roll-out of irrigation decentralization across Indian states, we show that these reforms reduce rural riots and perceived village-level conflicts. Our mechanism analysis points at reform-induced increases in the opportunity cost of conflict and highlights increased labor supply in agriculture and strengthened cooperation, which expand irrigation access and ultimately boost agricultural productivity.
Krzysztof Krakowski, Karol Mazur*
Working Paper | No. 20250901 |
Keywords: agriculture, conflict, public goods, irrigation management
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The Macroeconomic Impact of Agricultural Input Subsidies
Governments intervene in agriculture worldwide, a sector particularly susceptible to efficiency losses due to transaction costs. Upon introducing advantageous home production of food into a general equilibrium model with heterogeneous agents and incomplete markets, we show that agricultural input subsidy programs generate consumptionequivalent welfare gains of up to 3.8%. We demonstrate that Malawi's large program benefits society by mitigating the impact of transaction costs, redistributing resources to the poor, and providing insurance, thereby stimulating occupational mobility. We validate the model dynamics using an event study on the staggered introduction of input subsidy programs across Sub-Saharan Africa.
Karol Mazur, Laszlo Tetenyi
Working Paper | No. 20250702 |
Keywords: Agriculture, food security, structural change, misallocation
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Non-affiliated Distribution and Fund Performance: Evidence from Bank Wealth Management Funds in China
Using the Measures for the Administration of Bank Wealth Management Funds Sales as an exogenous shock in fund distributions in Chinese BWM industry, we find that the increase in nonaffiliated distribution brokers causally improves fund performance. The effect is more pronounced when the distribution broker possesses greater market power, when the fund issuer exhibits greater distribution dependence, and when horizontal competition is stronger between the distribution broker and fund issuer. Our findings indicate that non-affiliated distribution mitigates agency problems by providing both ex-ante effort-inducing and ex-post performance-monitoring, underscoring the role of non-affiliated distribution as an effective external governance mechanism.
Shusong Ba, Baixiao Liu, Linlin Ma, Yan Shen, and Xingyi Zhan*
Working Paper | No. 20250701 |
Keywords: bank wealth management, non-affiliated distribution, fund performance, agency problem, external governance
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