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Does stock market liberalization mitigate litigation risk? Evidence from Stock Connect in China

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  • Xiong, Lingyun
  • Deng, Hui
  • Xiao, Lijuan

Abstract

Prior studies have examined the economic consequences of stock market liberalization. However, the literature overlooks the relationship between stock market liberalization and litigation risk. We fill this research gap using a dataset of 19,696 Chinese firms over 2009–2018 and study how an important reform of stock market liberalization—Stock Connect—affects corporate litigation risk and the underlying channels through which this effect occurs. We find that Stock Connect has a positive effect on litigation risk in China, which is the result of a firm's improved information transparency after market liberalization. Finally, we find that the benefits of Stock Connect are more pronounced in non-state-owned enterprises; in firms with higher leverage, higher agency costs, lower investor concern, and firms without overseas operations or fierce market competition. This study provides new insights into understanding the positive effect of stock market liberalization in emerging markets.

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  • Xiong, Lingyun & Deng, Hui & Xiao, Lijuan, 2021. "Does stock market liberalization mitigate litigation risk? Evidence from Stock Connect in China," Economic Modelling, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:ecmode:v:102:y:2021:i:c:s026499932100170x
    DOI: 10.1016/j.econmod.2021.105581
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    5. Kin Ming Wong & Kwok Ping Tsang, 2023. "Inclusions and Exclusions of Stocks in Cross-Border Investments: The Case of Stock Connect," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(4), pages 701-727, December.

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    More about this item

    Keywords

    Stock market liberalization; Stock Connect; Foreign investors; Litigation risk;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

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