CKGSB Professor Erica Xuenan Li wins CICF Best Paper Award for Novel Measure of Financial Flexibility

August 01, 2023 | Faculty

CKGSB Professor of Finance Dr. Erica Xuenan Li and her coauthors have won the CICF Best Paper Award by the China International Conference in Finance in 2023. The paper “Balance Sheet Financial Flexibility”, co-authored by Professor Li, Professor of Finance Sudipto Dasgupta at CUHK and PhD student Siyuan Wu at CUHK, is one of the three award-winning papers out of 2,000 papers submitted worldwide.

Dr. Kewei Hou, Chairman of the CICF Paper Review Committee and Professor from Fischer School of Business of Ohio State University (first from the right), and Dr. Clemens Sialm, Editor-in-Chief of Review of Financial Studies and Professor from the University of Texas at Austin (first from the left) Present the CICF Best Paper Award to Professor Erica Xuenan Li (second from the right).

Financial flexibility is a key factor affecting business investment decisions and is said to be the primary goal when building corporate capital structures. Existing research, such as the Kaplan-Zingales (KZ) index, Whited-Wu (WW) index, and Hadlock-Pierce (HP) index, often uses financial constraint (FC) to measure financial flexibility, which in fact has little out-of-sample explanatory power and hence limited value of reference for corporate financial decision-making.

In contrast, Professor Li’s research proposed a novel method to measure financial flexibility based on firms’ investment behavior rather than financial statement disclosures.

In this paper, Professor Li and co-authors developed a financial flexibility index (FF Index) by analyzing balance sheet variables that distinguish firms with investment spikes from those that do not during industry-level investment surge.

The FF index outperforms the five popular measures of FC indices in explaining and predicting investment spikes in both in-sample and out-of-sample tests, providing a tool for predicting corporate investment decisions.


“We are glad that our research is recognized by CICF. We hope that with this paper and its findings, we can offer a more effective, comprehensive and concise index to investors and policymakers to measure corporate financial flexibility, so as to grasp companies’ financial position and investment capacity with more accuracy.” said Professor Li.

Since 2002, the China International Conference in Finance (CICF) has been providing an open platform that brings worldwide scholars together to present current research and stimulate new development in finance, and becoming one of the four major global financial academic conferences. Held in Shanghai, China during 6-9 July, 2023, this year’s CICF saw record-high paper submissions from around the world.

Established in Beijing in November 2002, Cheung Kong Graduate School of Business (CKGSB) is China’s first privately-funded and research-driven business school. The school aims to cultivate transformative business leaders with a global vision, sense of social responsibility, innovative mindset, and ability to lead with empathy and compassion. Dr Erica X.N. Li is a Professor of Finance and Director of China Industrial Policy Research Center at CKGSB. 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. Professor Li serves as an associate editor for International Review of Finance and Quarterly Journal of Economics and Management. She was awarded the Outstanding Research Award by CKGSB in 2018. Professor 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.

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