HSBC Business School Jake Zhao published a paper in The Journal of Finance on the mismatch of Chinese and American corporate debt and equity...

For countries, the horizontal mismatch of capital and labor is an important reason for the low total factor productivity of developing countries

The paper " The Misallocation of Finance " ("Financial Misallocation ") by Associate Professor Jake Zhao from Peking University HSBC Business School shifted the focus of corporate mismatches from the asset side of the balance sheet to the liability side, through a review of 1,262,887 Chinese and American companies The empirical analysis of the annual observational data has measured the actual loss caused by the mismatch of the cross-section of financial liabilities

Paper cover

The Journal of Finance was established in 1946 and is a bimonthly peer-reviewed academic journal published by Wiley-Blackwell on behalf of the American Finance Association

On the basis of the theoretical framework constructed by Hsieh and Klenow, Professor Jake Zhao modeled financial liabilities that constitute mismatched factors and may lead to distortions in total factor productivity, and designated different types of financial liabilities as the original inputs of the production process

In terms of sample data, the author selected data from the National Bureau of Statistics and Compustat from 1999 to 2007 from mining, manufacturing, and public utility companies with a turnover of 5 million yuan or more than 600,000 US dollars

The article further analyzes the cross-sectional model of China's debt cost, and finds that larger companies and companies located in more developed cities face significantly lower costs

The author not only successfully detected the frictions in the optimal investment and leverage dynamic models studied by previous studies, but also found that different forms of finance are not equivalent.

Jake Zhao

Jake Zhao joined the HSBC Business School of Peking University in 2016 as an assistant professor.