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The impact of stock market liberalization on long-term investment: Evidence from mainland–Hong Kong stock connect programs in China

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  • Zhao, Yi
  • Fu, Renhui
  • Gao, Fang

Abstract

This study examines the impact of stock market liberalization on long-term investment and its underlying mechanisms in the context of the Mainland–Hong Kong Stock Connect programs in China. The difference-in-differences estimation based on the propensity-score-matched sample suggests that stock market liberalization increases long-term investment by relieving financing constraints and restraining managerial myopia. Our results are more pronounced among privately owned firms, firms with foreign investors among the top ten shareholders, and firms in industries with long payback periods. Together, our findings suggest that stock market liberalization has a positive effect on managerial investment decisions.

Suggested Citation

  • Zhao, Yi & Fu, Renhui & Gao, Fang, 2024. "The impact of stock market liberalization on long-term investment: Evidence from mainland–Hong Kong stock connect programs in China," Pacific-Basin Finance Journal, Elsevier, vol. 86(C).
    • Handle: RePEc:eee:pacfin:v:86:y:2024:i:c:s0927538x24001562
    DOI: 10.1016/j.pacfin.2024.102405
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    Keywords

    Mainland–Hong Kong stock connect programs; Long-term investment; Financing constraints; Managerial myopia;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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