The fourth seminar in the “Noon Sunshine: Young Scholar Series” sponsored by the School of Finance at Nankai University was successfully held on Nov 11. The talk was given by Xiaolin Zhang, a new recruit from the School of Finance, on her working paper titled “A Corporate Finance Model with Customer Dynamics: the Leverage-Profitability Puzzle.” Executive Vice Dean Xiaoyun Fan and Vice Dean Lanbiao Liu attended the event. The School of Finance invited Professor Yongqiang Chu from University of North Carolina at Charlotte to be the discussant. Professor Chu is the Childress Klein Distinguished Professor, and the director of the Childress Klein Center for Real Estate. His work has been published in top journals such as Journal of Finance, Journal of Financial Economics, and Review of Financial Studies, and he also serves as the associate editor of Journal of Corporate Finance, and International Real Estate Review.

As an academic exchange between Nankai Finance and the international community, the seminar has received substantial attention and strong support from the leaders at School of Finance. Faculty members and students showed great interest and filled the room.

Assistant Professor Xiaolin Zhang presented her recent working paper “A Corporate Finance Model with Customer Dynamics: The Leverage-Profitability Puzzle”. In this paper, she focuses on the empirical inverse relation between leverage and profitability and explaining it in the context of the trade-off theory. Her model relaxes the assumption of exogenous firm cash flows and introduces pricing and quantity decisions in the product market. She argues that the firm make these decisions that take into account their short-term impact on profitability and long-term impact on customer base, and that these decisions affect debt choices because a firm with better long term prospects can accumulate more debt. Simulation results from a calibrated version of the model are consistent with regressions of leverage on profitability. The model offers other predictions that are support empirically.

Following Assistant Professor Xiaolin Zhang’s presentation, Professor Yongqiang Chu spoke highly of her paper, gave insightful comments on the model’s assumptions and mechanism, and proposed valuable suggestions on the analysis and future directions.

During the seminar, the audience were greatly engaged and frequently asked questions which were addressed adequately. The seminar ended successfully.

"Noon Sunshine" is a regular academic exchange platform held by the School of Finance since the establishment of the Institute, which aims to encourage faculty members to focus on frontier research topics, and promote academic communication and cooperation.

Copywriting: Xinxin Liang

Photography: Xianglong Liu, Chunxiao Wu