The internationalization of capital market and corporate innovation capabilities: A quasi-natural experiment on the inclusion of China's A-shares in the MSCI index

The capital market serves to link capital with the real economy. This study examines the long-term effects of capital market internationalization from the perspective of real economy corporate innovation capabilities. To do so, a quasi-natural experiment is conducted in which China's A-shares are included in the MSCI index to construct a time-varying PSM-DID model and study the impact of capital market internationalization on corporate innovation inputs and outputs. The results show that bringing China's A-shares in the MSCI index significantly improves corporate innovation capability through signaling and supervisory effects. Specifically, the internationalization of the capital market reduces corporate financing costs, increases corporate risk-taking, improves long-term institutional investors' shareholding, and alleviates managerial myopia. Furthermore, these effects were found to be more significant for both high-management shareholding enterprises and low-industry competition enterprises. The research conclusions support the proposition to further unleash corporate innovation, and as such, they have important implications for promoting the internationalization of the capital market.