PhD Defence: Lingtian Kong
In his dissertation ‘Essays on Financial Coordination’ Lingtian Kong investigates research on instances when the invisible hand fails to motivate the players to act optimally for the common good of the society.
Lingtian Kong defended his dissertation in the Senate Hall at Erasmus University Rotterdam on Thursday, 17 January 2019 at 09:30. His supervisors were Dr. Dion Bongaerts (RSM), Prof. Mark Van Achter (KU Leuven) and Prof. Marno Verbeek (RSM). Other members of the Doctoral Committee are Prof. Wolf Wagner (RSM), Prof. Sjoerd van Bekkum (ESE), Prof. Albert Menkveld (VU Amsterdam), Prof. Peter Roosenboom(RSM), Prof. Mathijs van Dijk (RSM) and Prof. Hans Degryse (KU Leuven).
Lingtian Kong was born in Shandong, China. With a passion in both the natural and social sciences, he became interested in economics as a way to analyze societal phenomena by research tools shared with the natural sciences. He obtained his Master of Science degree in Finance and Economics at the London School of Economics in 2012.
In 2012, Lingtian started his doctoral studies at Rotterdam School of Management, Erasmus University under the supervision of Professor Marno Verbeek, Doctor Dion Bongaerts and Doctor Mark Van Achter. His PhD project focuses on theoretical and empirical analysis of the mal-function of the financial market. He took various courses offered at RSM as well as other institutions and had teaching experience with both graduate and undergraduate students. In the third year of his PhD program, Lingtian went on a research visit to the Haas School of Business at the University of California, Berkeley, hosted by Professor Terrence Hendershott. He presented his research work at several international conferences and research seminars.
In this thesis, I research on instances when the invisible hand fails to motivate the players to act optimally for the common good of the society. I first explore in the context of trading speed competition. In a theoretical model, I show that when it is decreasing, the market discipline by the technological expenses borne by the traders themselves is not sufficient to curb the speed competition -- the traders would over-invest in speed and exhibit ''arms-race behavior''.
Then I did my investigation in the banking context. I show theoretically that higher risk taken by the bank may discourage runs. I demonstrate that this is a result of a common fact in finance: the higher the asset risk, the higher also is the asset upside payoff. Thus a higher asset risk means the asset would pay more when it succeeds, which benefits the depositors if they do not run and hold their deposits until maturity.
In the last part of the thesis, I move to a corporate governance context and set out to empirically test a long held question: do frequent evaluation of the CEO hurt or encourage firm innovation? I show that if given the opportunity to monitor the CEO too frequently, shareholders discipline may make the CEO reluctant to undertake R&D projects that are costly in the short term but valuable in the long term.
Taken together, this thesis shows that the invisible hand may fail to foster the socially optimal when externalities are not fully internalized and when information asymmetry is present.
Photos: Chris Gorzeman / Capital Images