Three essays on empirical finance

<p dir="ltr">The focus of my dissertation is on empirical finance, and it comprises three essays. Firstly, this thesis focuses on the effect of Government-Guided Funds (GGFs) on target industries in Development zones. The interplay between state-led interventions and market-driven forces has gained unparalleled prominence. This thesis examines China's strategic use of GGFs and their consequential impact on its National High-Tech Zones (NHZs). Through an analysis of 1,599 annual observations from 123 NHZs spanning 2007-2019, this thesis unveils a compelling correlation between GGF investments and augmented industrial activity. The findings of this thesis indicate that NHZs benefiting from GGF allocations evidenced a significant 5.5% surge in industrial activity. Two underlying mechanisms drive this relationship. The leverage mechanism portrays GGFs as attractors of private social capital to techcentric ventures within NHZs. Meanwhile, the guidance mechanism underscores NHZs' strategic clustering of high-tech sectors, amplifying benefits from shared resources and knowledge. Empirical analysis affirms both mechanisms, showing NHZs with robust social capital magnetism and tech clustering derive pronounced gains from GGF interventions. This thesis carries practical implications for both policymakers and academicians, offering a comprehensive analysis of the symbiotic relationship between fiscal strategies and industrial growth.</p><p dir="ltr">Secondly, by analyzing the disparities in the achievements of China's civil examination system (<i>keju</i>) among prefecture-level cities during the Ming-Qing period (c.1368–1905), this thesis finds that the <i>keju </i>legacy continues to have a lasting influence on contemporary corporate ethics norms. Each one standard deviation increase in <i>keju </i>tradition intensity reduces the likelihood of major litigation cases for local listed firms by nearly 12% compared to the sample mean. The enduring impact of the <i>keju </i>tradition can be explained through two main channels, the social value of fair competition and the excess cost of misconduct. Further analysis shows that the conclusion of the second study is not influenced by conservatism.</p><p dir="ltr">Finally, this thesis proposes a thermal infrared radiation (TIR) -based measure of earnings management (TIRM). A firm's production and operational activities consume energy and TIR. This thesis designs a model to estimate discrepancies between changes in firms' actual production activity levels, measured by changes in the TIR of their locations, and changes in their reported sales. Employing this measure, this thesis finds that TIRM positively relates to their level of accrual-based earnings management, specifically discretionary accruals and discretionary working capital accruals. Furthermore, this thesis documents that TIRM is significantly correlates with a higher probability of financial restatements and violations, indicating that TIRM is a robust indicator of earnings management practices.This thesis also demonstrates that TIRM is positively correlated with a firm’s likelihood of experiencing a future stock crash risk and investment inefficiency. Overall, the findings highlight that TIRM is an effective measure of earnings management with broader implications for predicting financial outcomes.</p>