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Capital market liberalization, internal control and corporate diversification: Evidence from China

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  • Li, Zhongze
  • Chen, Qinyuan
  • Zhang, Yi

Abstract

Using a sample of Chinese listed firms, we examine the effect of capital market liberalization on corporate diversification in the host country. Our findings show that after the opening of the capital market, corporate diversification significantly reduces. Moreover, we show that improving the quality of internal control is an important mechanism for capital market liberalization to reduce corporate diversification. Heterogeneity tests show that the effect of capital market liberalization on corporate diversification is more significant in firms with dual CEOs and low board diligence. Overall, capital market liberalization enhances the corporate governance of firms in a host country.

Suggested Citation

  • Li, Zhongze & Chen, Qinyuan & Zhang, Yi, 2025. "Capital market liberalization, internal control and corporate diversification: Evidence from China," Finance Research Letters, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:finlet:v:71:y:2025:i:c:s1544612324014673
    DOI: 10.1016/j.frl.2024.106438
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    References listed on IDEAS

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    Cited by:

    1. Zhang, Zhida & Ruan, Peiheng & Wang, Yuetang, 2025. "Does stock market liberalization restrain corporate misconduct: Evidence from research and development manipulation," International Review of Financial Analysis, Elsevier, vol. 106(C).

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    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • F15 - International Economics - - Trade - - - Economic Integration

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