Qiao Liu's Homepage

Qiao Liu's Research (Working papers + work in progress)

Research Papers (you can also download my research papers from SSRN, just click here )

The papers uploaded below are not updated frequently. Please email me for the most recent versions.

My research agenda changes from time to time. But most of my research projects fall into the following broad categories:

1. Managerial incentives

"Credit rating changes and CEO incentives" (with Qiang Kang), November 2006, submitted.

2. Predictability of Stock Returns

Two Accrual Anomalies. (with Qiang Kang and Rong Qi), 2009.

3. Corporate Governance and Its Practices in China

" The value of corporate control: propping and tunneling evidence from China" (with Chong-en Bai, Frank Song), first draft: May 2002. Most recent version: October 2006. submitted.
"Evolution and consequence of Chinese pyramids" (with Ying Zheng and Yuande Zhu), Feb., 2010.

4. Information Production and Corporate Finance

"Information Production, Corporate Investment and Diversification Discount" , (with Rong Qi), this version - April 2003. An early version of the paper was circulated with the title " Information production and diversification discount: a market microstructure approach".
" Information Production, Cash Flow and Corporate Investment" (with Rong Qi), First version: November 2001.This version: July 2003. under review. This paper has been presented at the 2003 American Finance Association annual meeting in Washington DC.
"Information and accruals strategy: when does the market misprice accruals? " (with Rong Qi), this draft, December 2006, submitted.

5. Corporate China - Finance, Investment, Industry Dynamics, and Investment
I started the project since returned to the academic world from McKinsey.

"Look who are disguising profits: an application to Chinese industrial firms" defunct. (with Geng Xiao). This draft: May 2005. A previous version was circulated with the title " Why do firms disguise their profits: theory and evidence from China" and it contained a profit disguising model in the text.

6. Knowledge capital, corporate finance and capital structure

" Growth Opportunities, Knowledge Capital, and Leverage: Evidence from US Biotech Firms" (defunct). A new version (co-authored with Keith K.P. Wong) is currently under the 3rd round of review at Management Science.
" The Rise and Fall of Internet Stocks: Should Financial Analysts be Blamed?" (with Frank M. Song), March 2001 . Under revision. It is one of the first papers the explore the naivety of financial analysts. It is well cited. Seems to us everyone except the referees likes the paper.
"It is tough being green" (with Michael Darby and Lynne Zucker), work in progress.

7. Asian Bond Market and SMEs Financing

My friends - Douglas Arner and Paul Lejot - seduced me into this field. I find this area extremely exciting, especially from policy making point of view. We have published a book and a refereed article in 2006.

"Asia's debt capital markets - appraisal and agenda for policy reform " (with Paul Lejot, Douglas Arner, Mylene Chan, and Marshall Mays), HKIMR working paper, October 2003.
"Making Markets: reforms to strengthen Asia's debt capital markets " (with Paul Lejot, Douglas Arner), HKIMR working paper.

You can download the above two papers from the HKIMR website.

8. Miscellaneous

"Why does not China have any world-class firms ? " in Chinese. July 2003.

9. Book project #1: Winning M&As in China

I started teaching mergers and acquisitions and related issues about three years ago. Up to now, I have taught the course titled "M&As" at HKU and Beijing U several times. I have also offered numerous executive training sessions to a wide range of audience. I may have to continue to do so, given that M&A is such a hot and sexy topic. It thus occurred to me that I should write a book about M&A. Over the past three years, I have compiled many cases, most of them are about China or related to China. More importantly, I figured that I have kind of sorted out a quite effective framework to understand the winning M&A strategies in the Chinese markets. I have tested these materials on many students, in both Chinese and English. I figured this book should be an interesting one... Tentatively, it will be structured around eleven important themes (I may add one or two later). They are:

What is corporate strategy? How are M&As positioned in a firm's corporate strategy? (Why did Lenovo acquire IBM's PC unit?)
Why 70% of M&As are failures? What are the M&A winning strategies? (Why did D'Long collapse? How did GE thrive?)
How do we define M&As and what are the driving forces behind the various M&A waves in the US? Why are M&As burgeoning in China? (Is China buying the world?)
How does a typical M&A process look like? sell side? buy side? (buying a company is of course different from buying a wedding ring, but what are the differences?)
How do we value a firm, or more generally, a targeted object in an M&A? (what is multiples? what is DCF? Why do I always recommend DCF to people?)
How to value synergies? How to capture synergies? (1+1>2, sounds easier, but how?)
How do we structure a deal in a typical M&A? (using cash or stock? how to reorganize the merged entity?)
What are the key issues to watch out in due diligence? (a secret I will detail in the book)
How to carry out a successful PMM (post merger management) program? (again, a secret...)
How to deal with corporate governance issues in M&A? in China?
M&A in a broader context - an effective framework to conduct ownership restructuring (well, as people always say, "small is beautiful", or "breaking up is good")

10. Book project #2: Financial Development, Institutions, and Firms - Corporate Behaviors During China's Reform Era

I started to research on the Chinese economy since I came to Hong Kong five years ago. Along the way, my understanding of the Chinese economy has greatly improved. Occasionally, I was labeled as an expert on the Chinese economy, and were invited to give talks about the Chinese economy here and there (see, e.g., here). However, the more I look into the Chinese economy, the more confused I feel. Especially, I have been bothered by a big puzzle recently - while the Chinese economy has experienced a breathtakingly fast growth during the past two decades, how come China does not have good companies? To be fair, China has some good companies such as Lenovo, Haier, Huawei, China Mobile, and PetroChina. But in terms of the number of good companies and their impact on business norm of Corporate China, China lags far behind. Based on the data from the national bureau of statistics of China (NBS), fixed asset investment accounts for close to 50% of China's GDP growth. Nevertheless, I am really concerned whether such investment-driving economic growth can be sustained going forward? A parallel question I would like to raise is how much of such investment is actually excessive. By saying "excessive investment", I mean the investments that are of low efficiency --- although they contribute to GDP, they barely create value rather than generate excessive supplies here and there.

In this book, I plan to attack this puzzle. My hypothesis is straightforward. According to Stern & Stuart type of thinking, an investment is efficient if its return on invested capital (ROIC) is larger than its cost of capital (WACC). In China, a large number of investments have their ROIC far below their WACC. The real puzzle thus is: how come such investments can get through? If we assume that the managers or government officials are rational, then the only reasonable explanation is that the WACCs they are facing must be very very low (close to zero), or the ROICs in their mental accounts are very very high. Of course, either case is not right. But why is it so? In this book, I will turn to the lack of institutional infrastructure, and poor financial development for the answers. I often joke around that this is a die hard project. Upon its completion I will be able to comfortably retire myself from academic research - a demanding business with low returns (yes, low ROIC!). I am serious!

11. Book project #3: Finance in Asia - A Textbook

I am currently teaching a broadening course at HKU titled "Current Asian Finance - Issues, Ideas and Practices". Often times, my students approach me and ask for appropriate books on this topic. I did some research and found that almost all the existing textbooks focus on the US or European markets. Obviously, they do not serve our purposes at all. My good friend, Dr. Douglas Arner from HKU's law faculty, also runs into the same dilemma - while Asian financial markets share many unique features and face many unique challenges, there is very little coverage about Asia in those commonly used textbooks. While both of us were busy with identifying good reading materials for our students (I have 250 students and Doug normally has close to 200 students each time we offer our courses), it occurred to us that we should write a book which is specifically about Asia. Paul Lejot will be our crime partners on this project. The book has been scheduled to be printed by London: Routledge soon...

12. Book project #4: The Divided Chinese Economy