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Professor Li received his PhD degree in Finance from W.P. Carey School of Business, Arizona State University, and two masters degrees (MBA: international business/MIS; MS: Computer Science) from University of Missouri at Kansas City.
His work experience includes various analyst and management positions in an international bank, a personal credit company, a small pharmaceutical consulting firm, and a fortune 500 health care corporation.
Professor Li's research interests reside in empirical corporate finance, particularly corporate governance and executive compensation. He has two goals. One is to better understand the subtle but important effects of various governance mechanisms and contract designs on managers and firms within the standard agency framework. The other is to identify and estimate the role of managerial attributes and non-standard preferences in determining organization structure, policy, and performance.
Teaching
HBA: Core Finance
Masters of Financial Economics: Corporate Finance
Masters of Science in Management: Finance
PhD: Financial Research
Programs Taught
HBA
MBA
PhD
Education
PhD in Finance, W.P. Carey School of Business, Arizona State University
Abstract: This paper examines the role of mutual funds in corporate social responsibility (CSR). Using a fund level holdings-based CSR score, we find that a mutual fund’s CSR score is positively related to a firm’s future CSR standings. This relationship is not just driven by high-CSR funds selecting high-CSR firms (initial selection effect), but also by improving their CSR standings afterwards (subsequent improvement effect). The effects of mutual funds on firm CSR are more pronounced for firms with higher mutual fund ownership and stronger corporate governance. Furthermore, we find that high-CSR funds are more likely to vote in favor of implementing CSR proposals, and that firms owned by high-CSR funds are more likely to link their CEO compensation to CSR outcomes. These results suggest that the social commitment of mutual funds is an important determinant of a firm’s social performance.
Abstract: We examine 1984-2018 data and show that the talent or ability of sell-side financial analysts affects a covered firm’s information environment—more so than the simple number of analysts covering a firm. We find that while analysts in general produce market and industry-level information, high-ability analysts contribute more firm-specific information. Firms covered by high-ability analysts experience significantly less insider trading prior to positive earnings news. Results only reside in opportunistic (not routine) trades. When an analyst initiates (terminates) coverage we find decreased (increased) subsequent insider trading. Both changes are primarily driven by analyst talent. Analyst ability also negatively relates to insider trading profitability.
Abstract: We use CEO pay sensitivity to stock performance (delta) and stock volatility (vega) to provide empirical evidence that CEO compensation structure influences firm Corporate Social Responsibility (CSR) performance. We find that delta has no significant effect on CSR, while vega has a strong, causal relationship with CSR. Our findings suggest that CEOs do not view CSR as value enhancing, but as a way to increase their own compensation through vega. Firms that want to improve their social performance should consider vega as an important compensation incentive for executives.
Abstract: We study the characteristics of all the published papers in the top three finance journals (JF, JFE, and RFS) and how these paper characteristics affect the number of citations in Google Scholar and the Web of Science database. We study the universalist perspective (what is said), the social constructivist perspective (who says it), and the presentation perspective (how it is said). First, we find the characteristics in the universalist perspective (quality and domain) remain constant while the characteristics in the other two perspectives increase over time. Second, some characteristics are significantly different between the high impact and the low impact groups. Third, most characteristics provide explanatory power for research impact. Specifically, paper quality, research method, journal placement, and paper age are the most important drivers. Last, different drivers play different roles in JF, JFE, and RFS.
Abstract: We examine the relative importance of observed and unobserved firm- and manager-specific heterogeneities in determining executive compensation incentives and firm policy, risk, and performance. First, we decompose executive incentives into time-variant and time-invariant firm and manager components. Manager fixed effects supply 73% (60%) of explained variation in delta (vega). Second, controlling for manager fixed effects alters parameter estimates and corresponding inference on observed firm and manager characteristics. Third, larger CEO delta (vega) fixed effects predict better firm performance (riskier corporate policies and higher firm risk). These results suggest that the delta (vega) fixed effect captures managerial ability (risk aversion). (JEL G3, G32, G34, J24, J31, J33)
Abstract: This paper explores stock market reactions to corporate social performance. We construct a value-weighted portfolio based on the list of “100 Best CSR companies in the world” published on the Forbes’ website by Reputation Institute. This portfolio yields statistically significant annual abnormal returns of 1.81% and 1.26%, by controlling for Carhart four factors and Fama-French five factors, respectively (2.41% and 1.84%, respectively for an equal-weighted portfolio). Moreover, such abnormal returns decrease as time passes, especially after the inaugural publication of the CSR lists in 2013. Furthermore, we find that companies with better social performance are more likely to have positive earnings surprises, and that their returns are more sensitive to earnings surprises. The results have three implications: firstly, CSR reputation contributes positively to a firm's short-term superior equity performance; secondly, the CSR lists facilitate market correction of mispricing intangibles such as CSR reputation — abnormal returns decrease as the market gradually learns about the value of firms’ social performance; lastly, the paper contributes to the socially responsible investing (SRI) screens and provides guidance for investors who would like to do well financially by doing good socially.
Abstract: Outside of direct ownership, the general public may feel it is an implicit stakeholder of a firm. As the public becomes more vested in a firm's actions, the firm may be more likely to engage in Corporate Social Responsibility (CSR) activities. We proxy for the public's stake in a firm with public visibility. Based on 3400 unique newspaper publications from 1994-2008, we measure visibility for the S&P 500 firms with the frequency of print articles per year concerning the firm. We find that visibility has a signficant, positive relationship with the CSR rating. Evidence also suggests this relationship may be causal and working in one direction, from visibility to CSR. While the existing literature provides other factors that influence CSR, visibility proves to have the most significant impact when tested alongside those other factors. Visibility also has a mediating effect on the relationship between CSR rating and firm size. CSR rating and firm size relate negatively for the lowest visibility firms and positively for the highest. This paper provides strong evidence that visibility is an important factor to consider for studies on corporate social performance.
Abstract: This paper empirically studies the connection between earnings management and corporate social performance, conditional on the existence of CSR-contingent executive compensation contracts, an emerging practice to link executive compensation to corporate social performance. We find that executives are more likely to manipulate earnings to achieve their personal compensation goals when CSR rating is low, as well as their CSR-contingent compensation. Because of public pressure on their excessive total compensation, corporate executives see no need to manipulate earnings to increase compensation when their CSR-contingent compensation is already high. Our results suggest that earnings management and CSR-contingent compensation are substitute tools to serve the interests of executives, which is an agency problem that was never previously studied. Additionally, we explore how managerial characteristics affect earnings management, driven by the incentive effects of CSR-linked compensation.
Abstract: In this paper, we propose a new clustering procedure for financial instruments. Unlike the prevalent clustering procedures based on time series analysis, our procedure employs the jump tail dependence coefficient as the dissimilarity measure, assuming that the observed logarithm of the pricesindices of the financial instruments are embedded into multidimensional Lévy processes. The efficiency of our proposed clustering procedure is tested by a simulation study. Finally, with the help of the real data of country indices we illustrate that our clustering procedure could help investors avoid potential huge losses when constructing portfolios.
Abstract: We empirically assess industry tournament incentives for CEOs, as measured by the compensation gap between the CEO at her firm and the highest-paid CEO among similar (industry, size) firms. We find that firm performance, firm risk, and the riskiness of firm investment and financial policies are positively associated with the external industry pay gap. The industry tournament effects are stronger when labor market frictions are lower, industry job mobility is higher, and CEO labor market mobility and the probability of the aspirant executive winning are higher.
Li, Z. F.; Lin, A.; Sun, S.; Tucker, A.,
2018, "Risk-adjusted inside debt", Global Finance Journal, February 35: 12 - 42.
Abstract: Compensation theory holds that executive aggression is related to both the level and riskiness of inside debt. However, previous researchers only have examined the level of inside debt. We provide an inside debt metric that is conceptually superior to previously used metrics as it incorporates the riskiness of inside debt. For the overall sample, our metric provides similar fit to prior metrics but is theoretically superior. The relation between our risk-adjusted inside debt metric and corporate conservatism is modestly better for non-investment grade firms, firms experiencing credit rating downgrades, and firms with high credit risk. The results tentatively support that managers are concerned with the risk-adjusted value of their inside debt, i.e., the inside debt adjusted by its default probability and expected recovery rate. Based on our findings for U.S. firms, we expect our metric to offer more explanatory power for economies wherein inside debt is very risky.
Abstract: Modigliani and Miller present an equity-quantity shifting equilibrating process to achieve an optimal firm value in the presence of corporate taxes. However, in the era in which they derived their various propositions regarding the relation between a firm’s value and its capital structure, well-capitalized takeover specialists including private equity firms and sovereign funds did not exist, at least by today’s standards. In this paper we develop a simple arbitrage strategy, made viable by the presence of takeover firms, which presents an alternative equilibrating process to achieve the same optimal firm value. This alternative process is markedly different from that of the Modigliani and Miller theorem in terms of its predictions for debt use and restores the prospect of capital structure irrelevancy despite the existence of corporate taxes
Abstract: In empirical corporate finance, firm size is commonly used as an important, fundamental firm characteristic. However, no research comprehensively assesses the sensitivity of empirical results in corporate finance to different measures of firm size. This paper fills this hole by providing empirical evidence for a measurement effect in the size effect. In particular, we examine the influences of employing different proxies (total assets, total sales, and market capitalization) of firm size in 20 prominent areas in empirical corporate finance research. We highlight several empirical implications. First, in most areas of corporate finance the coefficients of firm size measures are robust in sign and statistical significance. Second, the coefficients on regressors other than firm size often change sign and significance when different size measures are used. Unfortunately, this suggests that some previous studies are not robust to different firm size proxies. Third, the goodness of fit measured by R-squared also varies with different size measures, suggesting that some measures are more relevant than others in different situations. Fourth, different proxies capture different aspects of firm size, and thus have different implications. Therefore, the choice of size measures needs both theoretical and empirical justification. Finally, our empirical assessment provides guidance to empirical corporate finance researchers who must use firm size measures in their work.
Abstract: Purpose The purpose of this paper is to explore whether firms with powerful chief executive officers (CEOs) tend to invest (more) in corporate social responsibility (CSR) activities as the over-investment hypothesis based on classical agency theory predicts. Designmethodologyapproach This paper tests an alternative hypothesis that if CSR investment is indeed an agency cost like the over-investment hypothesis suggests, then those activities may destroy firm value. Findings Using CEO pay slice (Bebchuk et al., 2011), CEO tenure, and CEO duality to measure CEO power, the authors show that CEO power is negatively correlated with firm’s choice to engage in CSR and with the level of CSR activities in the firm. Furthermore, the results suggest that CSR activities are in fact value enhancing in that as firms engage in more CSR activities their value increases. Originalityvalue The first paper to study CEO power and CSR and their impact on firm value.