PhD Oral Exam - Chao He, Finance

When studying for a doctoral degree (PhD), candidates submit a thesis that provides a critical review of the current state of knowledge of the thesis subject as well as the student’s own contributions to the subject. The distinguishing criterion of doctoral graduate research is a significant and original contribution to knowledge.

Once accepted, the candidate presents the thesis orally. This oral exam is open to the public.

Abstract

This thesis explores the relationship between the ownership and social connections of mutual funds and their performance and investment decisions with a specific focus on political connections. Recent studies show that political connections are an important factor affecting stock prices and managerial decisions. However, such explorations are rare in the Chinese mutual fund industry. The thesis consists of three essays whose objectives and methodology are summarized below. The first essay, Political Connections of Chinese Fund Management Companies (FMCs) and Fund Performance, uses hand-collected information on shareholders' background of mutual funds and their fund management companies (FMCs) and administrative and criminal penalties for insider trading as the proxy of government regulation intensity. The essay finds a positive relationship between a fund's performance and the proportion of state-owned FMC ownership that supports our hypothesis that state-owned funds have an information advantage. This relationship becomes negative when the government increased its regulatory effort to reduce informational advantages obtained through this ownership channel. Results are robust using DiD and IV analyses, placebo tests, propensity score matching, Oster test for missing covariates, and alternate ownership classifications.

The second essay, Do Political Backgrounds of Fund Managers Affect Performance?, uses hand-collected information on the professional backgrounds of Chinese mutual fund managers to identify their political connection types. We find that funds with politically connected fund managers, primarily attributable to those with government department experiences, generally outperform managers without political connections before the 2012 anti-corruption campaign. In contrast, we find that mutual funds with politically connected fund managers, primarily attributable to those with state-owned financial institutions experiences, generally perform no difference after the 2012 campaign except for some economically unstable periods such as the 2018 China-U.S. Trade War. Our findings suggest that the anti-corruption campaign successfully contributed to greater market fairness by helping to reduce self-serving agency links between fund managers and government officials.

The third essay, Political Connections of Chinese Mutual Funds and Funds' Investment Decisions, examines the impact of political connections on the investment decisions of Chinese mutual funds. We identify a direct link between the political connections of mutual funds and stocks held from the same political network using hand-collected information on the professional backgrounds of Chinese mutual fund managers and fund management company (FMC) shareholders. We find that mutual funds tend to allocate more investment to stocks based on their direct political connections, and that this effect alleviates somewhat after the 2012 anti-corruption campaign. Our findings suggest that Chinese mutual funds use information obtained from their political networks when making investment decisions and the anti-corruption campaign contributed to greater market fairness by helping to reduce the effects of political connections between mutual funds and government-related agencies on fund holdings.