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Financial openness and profitability premium: Causal evidence from the Shanghai‐Hong Kong Stock Connect

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  • Fuwei Jiang
  • Fujing Jin
  • Kejia Zhang

Abstract

This study explores the impact of capital market openness on the profitability premium by using the Shanghai‐Hong Kong Stock Connect (SHKSC) programme as an exogenous shock. The empirical results show that (1) we can basically rule out the mispricing mechanism driving the significant profitability premium in China; (2) following SHKSC, the expected stock returns increase more across less profitable firms, and the less profitable firms have more increases in illiquidity, capital structure and information disclosure quality; and (3) the results are still robust after using propensity score matching analysis, deleting the highly volatile periods and conducting a firm‐level test with the triple‐differencing design.

Suggested Citation

  • Fuwei Jiang & Fujing Jin & Kejia Zhang, 2023. "Financial openness and profitability premium: Causal evidence from the Shanghai‐Hong Kong Stock Connect," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 451-483, March.
    • Handle: RePEc:bla:acctfi:v:63:y:2023:i:1:p:451-483
    DOI: 10.1111/acfi.13049
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