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Stock market liberalization and firm litigation risk——A quasi-natural experiment based on the Shanghai-Hong Kong Stock Connect policy

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  • Zhen Huang
  • Weiwei Gao

Abstract

Taking the openness of the Shanghai-Hong Kong Stock Connect policy as an exogenous shock, this paper examines how the stock market liberalization affects litigation risks of underlying stock firms and its influencing mechanisms. We use a difference-in-differences (DID) approach to analyse the sample of A-share firms listed on the Shanghai Stock Exchange, and find that the stock market liberalization can better curb litigation risk of the underlying stock firms (i.e. the firms listed on the Shanghai Stock Exchange that can also be traded in the Hong Kong Stock Exchange) than that of the non-underlying stock firms. Further, we provide evidence that the corporate governance mechanism rather than information transmission is the main channel through which stock market liberalization reduces litigation risk of the underlying stock firms. This paper emphasizes the unique role and spillover effects of the stock market liberalization, contributing to the literature on law and finance and the literature on the stock market liberalization.

Suggested Citation

  • Zhen Huang & Weiwei Gao, 2021. "Stock market liberalization and firm litigation risk——A quasi-natural experiment based on the Shanghai-Hong Kong Stock Connect policy," Applied Economics, Taylor & Francis Journals, vol. 53(48), pages 5619-5642, October.
    • Handle: RePEc:taf:applec:v:53:y:2021:i:48:p:5619-5642
    DOI: 10.1080/00036846.2021.1927963
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    Citations

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    Cited by:

    1. Xunfa Lu & Zhitao Ye & Kin Keung Lai & Hairong Cui & Xiao Lin, 2022. "Time-Varying Causalities in Prices and Volatilities between the Cross-Listed Stocks in Chinese Mainland and Hong Kong Stock Markets," Mathematics, MDPI, vol. 10(4), pages 1-19, February.
    2. He, Hui & Shi, Wei, 2023. "Enterprise litigation risk and enterprise performance," Finance Research Letters, Elsevier, vol. 55(PA).
    3. Li, Zhi & Liu, Yue & Huang, Wenxuan, 2024. "Capital structure and corporate litigation," International Review of Economics & Finance, Elsevier, vol. 95(C).
    4. Chen, Yulin & Han, Haozhe & Shen, Xieyang & Zeng, Jianyu, 2023. "The effect of stock market liberalization on corporate cash savings sensitivity: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 1247-1271.
    5. Yanyan Lin & Xipei Hou, 2024. "Stock market liberalisation and acquisition outcomes: Evidence from a natural experiment," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 3344-3371, July.
    6. 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.
    7. Sha, Yezhou & Zhang, Ping & Wang, Yiru & Xu, Yifan, 2022. "Capital market opening and green innovation——Evidence from Shanghai-Hong Kong stock connect and the Shenzhen-Hong Kong stock connect," Energy Economics, Elsevier, vol. 111(C).

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