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Capital market liberalization and its impact on corporate sustained innovation

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  • Meng, Meng
  • Gao, Yuan
  • Zhang, Chengwei

Abstract

This study investigates the impact of capital market liberalization on firms’ sustained innovation using the Shanghai–Shenzhen–Hong Kong Stock Connect as a quasi-natural experiment. Based on a sample of Chinese A-share listed firms from 2009 to 2023 and a multiperiod DID model, the results show that capital market openness significantly enhances both innovation input and output. Mechanism analyses indicate that this effect operates through improved internal control quality and increased knowledge diversification. Further analyses reveal stronger effects for firms with better information environments and higher external monitoring. Overall, the findings highlight the important role of financial market liberalization in promoting long-term innovation.

Suggested Citation

  • Meng, Meng & Gao, Yuan & Zhang, Chengwei, 2026. "Capital market liberalization and its impact on corporate sustained innovation," Finance Research Letters, Elsevier, vol. 101(C).
    • Handle: RePEc:eee:finlet:v:101:y:2026:i:c:s1544612326004083
    DOI: 10.1016/j.frl.2026.109878
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