Essays in Empirical Finance in the US and China
This dissertation has three chapters, with concentration in financial modeling using various econometric techniques. The first chapter discusses the potential determinants of Chinese non-performing loan (NPL) ratio in banking sector and its implications. By incorporating both bank specific factors and macro variables, it shows domestic credit growth rate, bank profitability measures and bank ownership play important roles in NPL ratio. Analysis on the shares proportion by different types of owners shows that increasing percentage of shares controlled by private institutional investors reduces the NPL ratio significantly. It raised a critically important question about the necessity of state owned enterprise (SOE) reform in China. The second chapter reviews two hypotheses for IPO underpricing, the general information asymmetry theory that ’underpricing’ is a consequence of investors needing to be compensated for uncertainty about the quality of the firm, and the more practical underwriter-institutional investor collusion that may explain the increasing underpricing in recent years. By studying underpricing in the context of the JOBS Act, a natural policy experiment that significantly reduces IPO disclosure requirement and yet increases the communication between institutional investors and issuers, I find that the JOBS Act increases the overall IPO underpricing 18 months after it was passed in 2012 compared to the same period before, in line with the traditional adverse selection phenomenon, but empirical analysis shows underpricing also increases correspondingly with the rising proportional shares of institutional investors in post-Act period, which supports the collusion hypothesis. The overall conclusion shows strong side effect of JOBS Act in terms of increasing underpricing to issuers and as a result more lucrative underwriting business. The third chapter focuses on US private equity market, trying to measure the effect of fund size and other fund characteristics as well as macroeconomic conditions on fund performance. The result shows that number of historical investment decisively influences the performance of funds, and inception of fund at the peak of the economic expansion seems to perform worse than other economic period. Fund size effect is ambiguous in full sample specifications but appears to be concave with respect to return when we look at this relationship in segmentation. Overall, previous experience of the investment plays an important role in continually improving the performance of the fund.