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Unlocking efficiency: How capital market liberalization shapes firm productivity

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  • Zhou, Lu Jolly
  • Deng, Nan
  • Li, Chenchen

Abstract

This study examines the granular impact of capital market liberalization on the real economy, utilizing the distinctive context of the Chinese market as a quasi-natural experimental setting. Our analysis demonstrates that capital market liberalization positively influences firm-level productivity. We further explore the mechanisms and provide empirical evidence that capital market liberalization improves asset pricing efficiency by enhancing informed trading effectiveness and rectifying stock mispricing. It also optimizes corporate governance from four distinct perspectives: mitigating agency costs, augmenting operational profitability, bolstering labor productivity, and enhancing transparency. These factors collectively contribute to improved productivity at the firm level, confirming the granular impact of financial liberalization in the product market.

Suggested Citation

  • Zhou, Lu Jolly & Deng, Nan & Li, Chenchen, 2025. "Unlocking efficiency: How capital market liberalization shapes firm productivity," Journal of Empirical Finance, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:empfin:v:82:y:2025:i:c:s0927539825000465
    DOI: 10.1016/j.jempfin.2025.101624
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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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