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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

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  • Tan, Yafei
  • Zhu, Zhaohui

Abstract

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.

Suggested Citation

  • Tan, Yafei & Zhu, Zhaohui, 2024. "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," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 1021-1038.
    • Handle: RePEc:eee:reveco:v:93:y:2024:i:pa:p:1021-1038
    DOI: 10.1016/j.iref.2024.03.060
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    More about this item

    Keywords

    A-shares in the MSCI index; Internationalization of capital market; Corporate innovation capabilities;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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