IDEAS home Printed from https://ideas.repec.org/a/eee/pacfin/v76y2022ics0927538x22001597.html
   My bibliography  Save this article

Capital market opening and stock price crash risk – Evidence from the Shanghai-Hong Kong stock connect and the Shenzhen-Hong Kong stock connect

Author

Listed:
  • Zhang, Ping
  • Sha, Yezhou
  • Wang, Yu
  • Wang, Tewei

Abstract

The capital market opening policies of Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect offer international investors an approach to investing directly in Mainland China stock markets. In this paper, we investigate the impact of the capital market opening policies on the stock price crash risk in China. With a dynamic difference-in-difference (DID) model, we find that capital market opening policies significantly reduce the stock price crash risk with a dynamic difference-in-difference (DID) model. Also, we study the influence mechanism of the capital market opening to reduce the stock price crash risk. We find that the capital market opening policies reduce the stock price crash risk by improving corporate governance and increasing information transparency. Furthermore, we find that the effect of the capital market opening policies is more pronounced among state-owned companies and high-tech industries.

Suggested Citation

  • Zhang, Ping & Sha, Yezhou & Wang, Yu & Wang, Tewei, 2022. "Capital market opening and stock price crash risk – Evidence from the Shanghai-Hong Kong stock connect and the Shenzhen-Hong Kong stock connect," Pacific-Basin Finance Journal, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:pacfin:v:76:y:2022:i:c:s0927538x22001597
    DOI: 10.1016/j.pacfin.2022.101864
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927538X22001597
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.pacfin.2022.101864?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Huo, Rui & Ahmed, Abdullahi D., 2017. "Return and volatility spillovers effects: Evaluating the impact of Shanghai-Hong Kong Stock Connect," Economic Modelling, Elsevier, vol. 61(C), pages 260-272.
    2. Hyuk Choe & Bong-Chan Kho & René M. Stulz, 2005. "Do Domestic Investors Have an Edge? The Trading Experience of Foreign Investors in Korea," Review of Financial Studies, Society for Financial Studies, vol. 18(3), pages 795-829.
    3. Jin, Li & Myers, Stewart C., 2006. "R2 around the world: New theory and new tests," Journal of Financial Economics, Elsevier, vol. 79(2), pages 257-292, February.
    4. Chen, Joseph & Hong, Harrison & Stein, Jeremy C., 2001. "Forecasting crashes: trading volume, past returns, and conditional skewness in stock prices," Journal of Financial Economics, Elsevier, vol. 61(3), pages 345-381, September.
    5. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2011. "Financial Openness and Productivity," World Development, Elsevier, vol. 39(1), pages 1-19, January.
    6. Jeong†Bon Kim & Liandong Zhang, 2016. "Accounting Conservatism and Stock Price Crash Risk: Firm†level Evidence," Contemporary Accounting Research, John Wiley & Sons, vol. 33(1), pages 412-441, March.
    7. Qi Chen & Itay Goldstein & Wei Jiang, 2007. "Price Informativeness and Investment Sensitivity to Stock Price," Review of Financial Studies, Society for Financial Studies, vol. 20(3), pages 619-650.
    8. Li, Yiwei & Zeng, Yeqin, 2019. "The impact of top executive gender on asset prices: Evidence from stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 528-550.
    9. Xu, Nianhang & Li, Xiaorong & Yuan, Qingbo & Chan, Kam C., 2014. "Excess perks and stock price crash risk: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 419-434.
    10. Apanard P. Angkinand & Wanvimol Sawangngoenyuang & Clas Wihlborg, 2010. "Financial Liberalization and Banking Crises: A Cross‐Country Analysis," International Review of Finance, International Review of Finance Ltd., vol. 10(2), pages 263-292, June.
    11. Christian Leuz & Karl V. Lins & Francis E. Warnock, 2010. "Do Foreigners Invest Less in Poorly Governed Firms?," The Review of Financial Studies, Society for Financial Studies, vol. 23(3), pages 3245-3285, March.
    12. Ben-Nasr, Hamdi & Ghouma, Hatem, 2018. "Employee welfare and stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 700-725.
    13. Chen, Changling & Kim, Jeong-Bon & Yao, Li, 2017. "Earnings smoothing: Does it exacerbate or constrain stock price crash risk?," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 36-54.
    14. Kim, Jeong-Bon & Li, Yinghua & Zhang, Liandong, 2011. "Corporate tax avoidance and stock price crash risk: Firm-level analysis," Journal of Financial Economics, Elsevier, vol. 100(3), pages 639-662, June.
    15. Hutton, Amy P. & Marcus, Alan J. & Tehranian, Hassan, 2009. "Opaque financial reports, R2, and crash risk," Journal of Financial Economics, Elsevier, vol. 94(1), pages 67-86, October.
    16. Panayiotis C. Andreou & Christodoulos Louca & Andreas P. Petrou, 2017. "CEO Age and Stock Price Crash Risk," Review of Finance, European Finance Association, vol. 21(3), pages 1287-1325.
    17. Yuming Zhang & Juanjuan Zhang & Zhang Cheng, 2021. "Stock Market Liberalization and Corporate Green Innovation: Evidence from China," IJERPH, MDPI, vol. 18(7), pages 1-22, March.
    18. Marcin Kacperczyk & Savitar Sundaresan & Tianyu Wang & Wei Jiang, 2021. "Do Foreign Institutional Investors Improve Price Efficiency? [Does governance travel around the world? Evidence from institutional investors]," Review of Financial Studies, Society for Financial Studies, vol. 34(3), pages 1317-1367.
    19. Lin, Yongjia Rebecca & Fu, Xiaoqing Maggie, 2017. "Does institutional ownership influence firm performance? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 17-57.
    20. Ke Xu & Xinwei Zheng & Deng Pan & Li Xing & Xuekui Zhang, 2020. "Stock Market Openness And Market Quality: Evidence From The Shanghai–Hong Kong Stock Connect Program," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 43(2), pages 373-406, May.
    21. Moshirian, Fariborz & Tian, Xuan & Zhang, Bohui & Zhang, Wenrui, 2021. "Stock market liberalization and innovation," Journal of Financial Economics, Elsevier, vol. 139(3), pages 985-1014.
    22. Yang-Chao Wang & Jui-Jung Tsai & Yi Lin, 2016. "The Influence Of Shanghai-Hong Kong Stock Connect On The Mainland China And Hong Kong Stock Markets," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 10(3), pages 1-10.
    23. Mingfa Ding & Birger Nilsson & Sandy Suardi, 2017. "Foreign Institutional Investment, Ownership, and Liquidity: Real and Informational Frictions," The Financial Review, Eastern Finance Association, vol. 52(1), pages 101-144, February.
    24. Zou, Liping & Tang, Tiantian & Li, Xiaoming, 2016. "The stock preferences of domestic versus foreign investors: Evidence from Qualified Foreign Institutional Investors (QFIIs) in China," Journal of Multinational Financial Management, Elsevier, vol. 37, pages 12-28.
    25. Wen, Fenghua & Xu, Longhao & Ouyang, Guangda & Kou, Gang, 2019. "Retail investor attention and stock price crash risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 65(C).
    26. S. P. Kothari & Susan Shu & Peter D. Wysocki, 2009. "Do Managers Withhold Bad News?," Journal of Accounting Research, Wiley Blackwell, vol. 47(1), pages 241-276, March.
    27. Chang, Xin & Chen, Yangyang & Zolotoy, Leon, 2017. "Stock Liquidity and Stock Price Crash Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(4), pages 1605-1637, August.
    28. Ji, Qiong & Quan, Xiaofeng & Yin, Hongying & Yuan, Qingbo, 2021. "Gambling preferences and stock price crash risk: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 128(C).
    29. Grinblatt, Mark & Keloharju, Matti, 2000. "The investment behavior and performance of various investor types: a study of Finland's unique data set," Journal of Financial Economics, Elsevier, vol. 55(1), pages 43-67, January.
    30. Kenneth A. Froot & Tarun Ramadorai, 2008. "Institutional Portfolio Flows and International Investments," Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 937-971, April.
    31. Aggarwal, Reena & Erel, Isil & Ferreira, Miguel & Matos, Pedro, 2011. "Does governance travel around the world? Evidence from institutional investors," Journal of Financial Economics, Elsevier, vol. 100(1), pages 154-181, April.
    32. Nandini Gupta & Kathy Yuan, 2009. "On the Growth Effect of Stock Market Liberalizations," Review of Financial Studies, Society for Financial Studies, vol. 22(11), pages 4715-4752, November.
    33. Stiglitz, Joseph E., 2000. "Capital Market Liberalization, Economic Growth, and Instability," World Development, Elsevier, vol. 28(6), pages 1075-1086, June.
    34. Marianne Bertrand & Paras Mehta & Sendhil Mullainathan, 2002. "Ferreting out Tunneling: An Application to Indian Business Groups," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 121-148.
    35. Kalok Chan & Albert J. Menkveld & Zhishu Yang, 2008. "Information Asymmetry and Asset Prices: Evidence from the China Foreign Share Discount," Journal of Finance, American Finance Association, vol. 63(1), pages 159-196, February.
    36. Luong, Hoang & Moshirian, Fariborz & Nguyen, Lily & Tian, Xuan & Zhang, Bohui, 2017. "How Do Foreign Institutional Investors Enhance Firm Innovation?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(4), pages 1449-1490, August.
    37. Anna M. Costello & Regina Wittenberg‐Moerman*, 2011. "The Impact of Financial Reporting Quality on Debt Contracting: Evidence from Internal Control Weakness Reports," Journal of Accounting Research, Wiley Blackwell, vol. 49(1), pages 97-136, March.
    38. Bena, Jan & Ferreira, Miguel A & Matos, Pedro & Pires, Pedro, 2017. "Are foreign investors locusts? The long-term effects of foreign institutional ownership," Journal of Financial Economics, Elsevier, vol. 126(1), pages 122-146.
    39. Hu, Juncheng & Li, Xiaorong & Duncan, Keith & Xu, Jia, 2020. "Corporate relationship spending and stock price crash risk: Evidence from China's anti-corruption campaign," Journal of Banking & Finance, Elsevier, vol. 113(C).
    40. Fan, Qingliang & Wang, Ting, 2017. "The impact of Shanghai–Hong Kong Stock Connect policy on A-H share price premium," Finance Research Letters, Elsevier, vol. 21(C), pages 222-227.
    41. Hu, Jinshuai & Li, Siqi & Taboada, Alvaro G. & Zhang, Feida, 2020. "Corporate board reforms around the world and stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 62(C).
    42. Huang, Shoujun & Liu, Hezhe, 2021. "Impact of COVID-19 on stock price crash risk: Evidence from Chinese energy firms," Energy Economics, Elsevier, vol. 101(C).
    43. Gul, Ferdinand A. & Kim, Jeong-Bon & Qiu, Annie A., 2010. "Ownership concentration, foreign shareholding, audit quality, and stock price synchronicity: Evidence from China," Journal of Financial Economics, Elsevier, vol. 95(3), pages 425-442, March.
    44. Joseph D. Piotroski & T. J. Wong & Tianyu Zhang, 2015. "Political Incentives to Suppress Negative Information: Evidence from Chinese Listed Firms," Journal of Accounting Research, Wiley Blackwell, vol. 53(2), pages 405-459, May.
    45. Froot, Kenneth A. & O'Connell, Paul G. J. & Seasholes, Mark S., 2001. "The portfolio flows of international investors," Journal of Financial Economics, Elsevier, vol. 59(2), pages 151-193, February.
    46. Callen, Jeffrey L. & Fang, Xiaohua, 2015. "Short interest and stock price crash risk," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 181-194.
    47. Xu, Nianhang & Jiang, Xuanyu & Chan, Kam C. & Yi, Zhihong, 2013. "Analyst coverage, optimism, and stock price crash risk: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 25(C), pages 217-239.
    48. Ben Rejeb, Aymen & Boughrara, Adel, 2013. "Financial liberalization and stock markets efficiency: New evidence from emerging economies," Emerging Markets Review, Elsevier, vol. 17(C), pages 186-208.
    49. Chen, Hsuan-Chi & Chou, Robin K. & Lu, Chien-Lin, 2018. "Saving for a rainy day: Evidence from the 2000 dot-com crash and the 2008 credit crisis," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 680-699.
    50. Bae, Kee-Hong & Goyal, Vidhan K., 2010. "Equity market liberalization and corporate governance," Journal of Corporate Finance, Elsevier, vol. 16(5), pages 609-621, December.
    51. Ferreira, Miguel A. & Matos, Pedro, 2008. "The colors of investors' money: The role of institutional investors around the world," Journal of Financial Economics, Elsevier, vol. 88(3), pages 499-533, June.
    52. Apanard P. Angkinand & Wanvimol Sawangngoenyuang & Clas Wihlborg, 2010. "Financial Liberalization and Banking Crises: A Cross-Country Analysis-super-," International Review of Finance, International Review of Finance Ltd., vol. 10(Financial), pages 263-292.
    53. Al Mamun, Md & Balachandran, Balasingham & Duong, Huu Nhan, 2020. "Powerful CEOs and stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 62(C).
    54. Callen, Jeffrey L. & Fang, Xiaohua, 2015. "Religion and Stock Price Crash Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 50(1-2), pages 169-195, April.
    55. Callen, Jeffrey L. & Fang, Xiaohua, 2013. "Institutional investor stability and crash risk: Monitoring versus short-termism?," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3047-3063.
    56. Li, Xiaorong & Wang, Steven Shuye & Wang, Xue, 2017. "Trust and stock price crash risk: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 76(C), pages 74-91.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cheng, Yuanyuan & Du, Kerui & Yao, Xin, 2023. "Stringent environmental regulation and inconsistent green innovation behavior: Evidence from air pollution prevention and control action plan in China," Energy Economics, Elsevier, vol. 120(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zuo, Junqing & Zhang, Wei & Hu, Mingya & Feng, Xu & Zou, Gaofeng, 2022. "Employee relations and stock price crash risk: Evidence from employee lawsuits," International Review of Financial Analysis, Elsevier, vol. 82(C).
    2. Yan Meng & Lingyun Xiong & Lijuan Xiao & Min Bai, 2023. "The effect of overseas investors on local market efficiency: evidence from the Shanghai/Shenzhen–Hong Kong Stock Connect," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-32, December.
    3. Meng, Yongqiang & Shen, Dehua & Xiong, Xiong, 2023. "When stock price crash risk meets fundamentals," Research in International Business and Finance, Elsevier, vol. 65(C).
    4. Jiang, Kangqi & Du, Xinyi & Chen, Zhongfei, 2022. "Firms' digitalization and stock price crash risk," International Review of Financial Analysis, Elsevier, vol. 82(C).
    5. Xu, Lin & Rao, Yulei & Cheng, Yingmei & Wang, Jianxin, 2020. "Internal coalition and stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 64(C).
    6. Wang, Xiaoxiao & Liu, Haiming, 2022. "The impact of rollover restriction on stock price crash risk," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    7. Yang, Jun & Lu, Jing & Xiang, Cheng, 2020. "Company visits and stock price crash risk: Evidence from China," Emerging Markets Review, Elsevier, vol. 44(C).
    8. Chen, Yangyang & Fan, Qingliang & Yang, Xin & Zolotoy, Leon, 2021. "CEO early-life disaster experience and stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 68(C).
    9. Kim, Jeong-Bon & Liao, Shushu & Liu, Yangke, 2021. "Married CEOs and Stock Price Crash Risk," QBS Working Paper Series 2021/09, Queen's University Belfast, Queen's Business School.
    10. Wen, Fenghua & Xu, Longhao & Ouyang, Guangda & Kou, Gang, 2019. "Retail investor attention and stock price crash risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 65(C).
    11. Cao, Feng & Zhang, Xueyan & Yuan, Rongli, 2022. "Do geographically nearby major customers mitigate suppliers’ stock price crash risk?," The British Accounting Review, Elsevier, vol. 54(6).
    12. Jin, Hong-min & Su, Zhong-qin & Wang, Lu & Xiao, Zuoping, 2022. "Do academic independent directors matter? Evidence from stock price crash risk," Journal of Business Research, Elsevier, vol. 144(C), pages 1129-1148.
    13. Hossain, Ashrafee T. & Masum, Abdullah-Al & Xu, Jian, 2023. "COVID-19, a blessing in disguise for the Tech sector: Evidence from stock price crash risk," Research in International Business and Finance, Elsevier, vol. 65(C).
    14. Cheng, Feiyang & Wang, Chunfeng & Chiao, Chaoshin & Yao, Shouyu & Fang, Zhenming, 2021. "Retail attention, retail trades, and stock price crash risk," Emerging Markets Review, Elsevier, vol. 49(C).
    15. Shi, Lisi & Ho, Kung-Cheng & Liu, Ming-Yu, 2023. "Does societal trust make managers more trustworthy?," International Review of Financial Analysis, Elsevier, vol. 86(C).
    16. Richardson, Grant & Obaydin, Ivan & Liu, Chelsea, 2022. "The effect of accounting fraud on future stock price crash risk," Economic Modelling, Elsevier, vol. 117(C).
    17. Chen, Jing & Liu, Xinghe & Ou, Fenghao & Lu, Meiting & Wang, Peipei, 2023. "Green lending and stock price crash risk: Evidence from the green credit reform in China," Journal of International Money and Finance, Elsevier, vol. 130(C).
    18. Lin, Tse-Chun & Liu, Jinyu & Ni, Xiaoran, 2022. "Foreign bank entry deregulation and stock market stability: Evidence from staggered regulatory changes," Journal of Empirical Finance, Elsevier, vol. 69(C), pages 185-207.
    19. Balachandran, Balasingham & Duong, Huu Nhan & Luong, Hoang & Nguyen, Lily, 2020. "Does takeover activity affect stock price crash risk? Evidence from international M&A laws," Journal of Corporate Finance, Elsevier, vol. 64(C).
    20. Zuo, Jingjing & Qiu, Baoyin & Zhu, Guoyiming & Lei, Guangyong, 2023. "Local speculative culture and stock price crash risk," Research in International Business and Finance, Elsevier, vol. 64(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:pacfin:v:76:y:2022:i:c:s0927538x22001597. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/pacfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.