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Stock market liberalization and corporate risk-taking: evidence from Mainland China–Hong Kong Stock Connect

Author

Listed:
  • Maoguo Wu

    (Shanghai University)

  • Zhengyang Yu

    (Shanghai University)

  • Yuhan Mao

    (Shanghai University)

  • Ziqi Zhai

    (University of Technology Sydney)

  • Ruohan Liu

    (Shanghai University)

  • Yuwei Wang

    (East China Normal University)

Abstract

Using Mainland China–Hong Kong Stock Connect (MCHKSC) as a quasi-natural experiment, this study investigates the effect of stock market liberalization on corporate risk-taking. Utilizing a sample of Chinese A-share listed firms from 2009 to 2023 and a difference-in-differences framework, we demonstrate that MCHKSC has significantly decreased corporate risk-taking for eligible firms. Tests on underlying mechanisms show that MCHKSC has increased institutional ownership and decreased large shareholders’ power. Heterogeneity tests indicate that the policy effect is more pronounced in firms audited by non-Big-Four audit firms, small firms, and firms with overconfident managers. Further tests on economic consequences find that MCHKSC has increased interest coverage and decreased stock price synchronicity by decreasing corporate risk-taking. This study provides empirical evidence and practical insights for the orderly promotion of stock market liberalization.

Suggested Citation

  • Maoguo Wu & Zhengyang Yu & Yuhan Mao & Ziqi Zhai & Ruohan Liu & Yuwei Wang, 2025. "Stock market liberalization and corporate risk-taking: evidence from Mainland China–Hong Kong Stock Connect," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 15(1), pages 273-301, March.
    • Handle: RePEc:spr:eurasi:v:15:y:2025:i:1:d:10.1007_s40821-025-00291-0
    DOI: 10.1007/s40821-025-00291-0
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    Keywords

    Stock market liberalization; Corporate risk-taking; Mainland China–Hong Kong Stock Connect; Institutional ownership; Large shareholders’ power;
    All these keywords.

    JEL classification:

    • 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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