The Global Change in Corporate Production Function

Prof. Erica Xuenan Li
Professor of Finance and
Director of China Industrial Policy Research Center,
Cheung Kong Graduate School of Business (CKGSB)

Date: 24 April 2025 (Thursday)
Time: 10:30 to 12:00
Venue: E22-G015
Host: Prof. Endong YANG, Assistant Professor in Finance

Abstract
The assumption of a concave production function has long been a cornerstone in economics literature. However, by applying Bayesian Markov Chain Monte Carlo (MCMC) to estimate the structural break, we uncover that since the 1980s, the corporate production function has evolved into a sigmoidal (convex-concave) form, with the convex portion becoming increasingly prominent over time. This structural change, evident across a wide range of countries and industries, quantitatively accounts for the rising share of firms with negative net earnings. Finally, we highlight the welfare implications of this transformation, including the impact of intensified competition and the potential advantages of shifting the tax base from net earnings to gross profits.

Speaker

Prof. Erica Xuenan Li is a Professor of Finance and Director of China Industrial Policy Research Center at the Cheung Kong Graduate School of Business (CKGSB). Before joining CKGSB in 2012, she served as Assistant Professor of Finance at the Ross School of Business at University of Michigan during 2007 and 2012. Her academic research interest focuses on asset pricing, monetary policy and corporate governance. Her papers have been published in top journals, including Review of Financial Studies, Journal of Financial Economics, Journal of Monetary Economics, and Management Sciences. Prof. Li serves as an associate editor for Journal of Empirical Finance, International Review of Finance and Quarterly Journal of Economics and Management. She was awarded the Outstanding Research Award twice by CKGSB. Prof. Li holds a PhD in Finance with a minor in Macroeconomics from the University of Rochester and a PhD in Physics from the University of Massachusetts, Amherst. She also holds bachelor’s degrees in Physics and Economics from Peking University.

All are welcome!