Zhan Li

Job Market Candidate

Department of Economics
W. P. Carey School of Business
Arizona Strate University

    Office:CPCOM 425A
    Mailing Address:
    Main Campus
    PO BOX 879801
    Tempe, AZ 85287-9801

    Cell Phone: 480-335-7768
    Fax: 480-965-0748
    Email: Zhan.Li@asu.edu

Research Interests

Applied Theory, Corporate Finance and Governance, Financial Markets


A Unique “T+1 Trading Rule” in China: Theory and Evidence , 2012, with Ming Guo and Zhiyong Tu, Journal of Banking and Finance 36, 575–583.

ABSTRACT: Unique to the world, China adopts a “T + 1 trading rule”, which prevents investors from selling stocks bought on the same day. We develop a dynamic price manipulation model to study the effects of the “T + 1 trading rule”. Compared to the “T + 0 trading rule”, which allows investors to buy and sell the same stocks during the same day, we show that the “T + 1 trading rule” reduces the total trading volume and price volatility, and improves the trend chasers’ welfare when trend-chasing is strong. An empirical test using data on China’s B-share stock market supports the model’s theoretical predictions.

Working Papers

Boards of Directors, Corporate Governance and the Market for CEOs, 2014, Job Market Paper.

ABSTRACT: We present a unified theory of CEO compensation and corporate governance by consider- ing the matching between CEOs of different talent and firms of different size. By introducing two important features that CEOs can misreport and monitoring the CEO is costly for direc- tors, we have a number of novel findings. First, when the cost of monitoring is large enough, positive assortative matching breaks down as more talented CEOs match with smaller firms. Second, firm-level corporate governance depends on aggregate market characteristics such as the scarcity of CEO talent and how CEOs match with firms. Weak corporate governance can result from the competition for CEO talent. Third, under positive assortative matching, CEO compensation can be decomposed into frictionless competitive market pay and information rent. More talented CEOs extract more rent, which makes their wage even higher. Our analysis yields empirical predictions on CEO compensation, corporate governance, and equilibrium sorting pattern.

Directors’ Reputation Incentives and CEO Labor Market, 2012, Accepted at 2013 Middle West Finance Association Annual Meeting.

ABSTRACT:This paper examines how directors’ reputation incentives affect managerial compensation and firm profits in a two-sided matching market. We find that the allocation of managers is distorted from positive assortative matching as smaller firms match with more talented managers. In equilibrium, a firm earns lower profit, matches with a more talented manager if the director has higher reputational concerns, the firm has weaker governance, the director’s ability is more uncertain or the product market is more volatile. When compared with models of positive assortative matching, each manager is overpaid and each firm earns less profit even there is only one weakly governed firm. This is caused by the externality of weak corporate governance which induces every firm to overpay its manager when competing for scarce managerial talent.

Positive Feedback Trading, Short Sale Constraints, and IPO Underpricing: Theory and Empirical Evidence, 2014, with Ming Guo, coming soon.

ABSTRACT: This paper develops a dynamic trading model to explore the impact of positive feed- back trading on IPO underpricing in the presence of short-sale constraints. When positive feedback trading is strong, the speculator adopts a three-stage strategy: bids in the offering lottery to obtain cheap stakes; purchases stocks in the aftermarket to drive up the price; sells his stakes obtained from the offering when positive feedback traders are induced to buy, leading to a higher price. This model shows the aftermarket price can be overpriced even though the IPO price is at the fair value. The predictions of the model are supported by a sample of Chinese IPOs.

Work in Progress

The Bright Side of Busy Directors
Board Size and Firm Performance: From the Perspective of Board Voting, with Zhenhua Wu

Teaching Experience

Teaching Assistant

Business Statistics (400 students): Fall 2014
Microeconomic Principles (300-1000 students): Fall 2010, Fall 2011, Spring 2012, Spring 2013, Fall 2013
Macroeconomic Principles (300-1000 students): Spring 2010, 2011, Spring 2012, Spring 2014

Job duties: Hold office hours, design exam questions, hold review sessions and labs, etc.

Grading Assistant

Managerial Economics, Fall, 2014
Economics of Healthcare, Spring 2014
Intermediate Microeconomic Theory, Fall 2009, Fall 2012
Game Theory and Economic Behavior, Fall 2012
Industrial Organization and Competition Policy, Fall 2009