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Research
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Like a duck to water: Do credit rating analysts outperform in bond fund management, with Xiaolu Hu [SSRN Link]
Credit-rating experience translates into investment skill.
Bond fund managers who previously worked at credit rating agencies earn 11–16 basis points more in risk-adjusted returns per month than their peers. Their advantage comes from better security selection and market timing—especially in industries they once covered—rather than privileged access to former colleagues.
Why it matters: Specialised knowledge acquired earlier in a career can remain valuable in asset management, and fund investors appear to recognise that skill through their allocation decisions.
Figure 2. Agent managers improve bond fund performance. Fund alpha rises after a former credit-rating analyst joins and falls after they leave. Error bars show 95% confidence intervals.
Cash, crisis, and capers: The UK's cashbox policy during COVID-19, with Yunhe Dong, Zijin Vivian Xu and Xing (Alex) Yang [SSRN Link]
In a crisis, investors valued rapid access to cash more than normal governance safeguards.
During COVID-19, UK “Cashbox” issuances let firms raise equity without the usual shareholder vote. Their announcements produced abnormal returns 4–6 percentage points higher than other equity issuances, with the strongest response among financially constrained firms and firms with better governance.
Why it matters: Emergency capital-raising flexibility can create value when liquidity is scarce, but credible governance still shapes how investors receive it.
Figure 1. Investors favour Cashbox issuances during the crisis. Risk-adjusted returns rise following Cashbox announcements but turn negative for conventional issuances, consistently across both models.
Long-term value versus short-term profits: When do index funds recall loaned shares for voting?, with Zijin Vivian Xu [SSRN Link]
Index funds sometimes give up lending income to preserve their vote.
Firms with greater index ownership see more shares recalled before proxy-voting record dates. A one-percentage-point increase in index ownership is associated with a 0.196-percentage-point increase in share recall — about 20% of the sample mean. Recall is especially likely when performance is weak or a vote could be consequential, and it is associated with greater support for shareholder-sponsored and ESG proposals.
Why it matters: Passive investing does not necessarily mean passive ownership. Index funds actively balance short-term lending revenue against long-term stewardship responsibilities.
Figure 2. Shareholders recall loaned shares to vote. Lendable supply falls sharply before the proxy-voting record date among recall firms, then rebounds immediately afterward.
Investing while lending: Do index funds improve managerial information disclosure?, with Yunhe Dong, Zijin Vivian Xu and Xing (Alex) Yang [SSRN Link]
Index funds improve corporate transparency—even though their securities lending works in the opposite direction.
Using US firm data from 2002–2017, we show that securities lending is associated with a poorer information environment. Index ownership, however, is associated with greater transparency, less managerial hoarding of bad news, and less abnormal trading around stock-price crashes. Overall, the ownership effect dominates.
Why it matters: Evaluating passive funds requires looking at both sides of their activity: how they lend securities and how they govern the companies they own.
Intra-industry spill-over effect of default: Evidence from the Chinese bond market, with Xiaolu Hu, Jiang Li and Zijin Vivian Xu [SSRN Link]
One firm’s bond default raises borrowing costs across its industry.
In China’s corporate bond market, a default depresses the prices of bonds issued by industry peers and raises the cost of their new debt. Contagion is stronger in regulated and less competitive industries, and when the defaulting issuer is state-owned; better information and more liquid bonds soften the effect.
Why it matters: Credit shocks do not stop at the defaulting firm. Market structure, state ownership, information and liquidity determine how far they spread.
How going public affects firm productivity and cost of debt: Evidence from buyout firms, with Maurice McCourt [SSRN Link]
Going public increases buyout firms’ productivity — but can weaken their bargaining advantage with lenders.
Before an IPO, buyout-backed firms are already more productive and borrow at lower spreads than comparable firms that remain private. After listing, their productivity rises further. Their loan spreads also rise relative to their own pre-IPO level, particularly after the global financial crisis, although they remain low relative to private peers.
Why it matters: An IPO changes more than access to equity. It can improve firm productivity while also reshaping bargaining power in debt markets.
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