Capital Market Opening And Cost Of Equity Capital

In the early 1970 s,developed countries began the wave of capital market opening,and all developed countries realized the capital market opening by the mid-1980 s.After the mid-1980 s,the emerging capital market countries and regions also opened their capital markets successively under the impetus of the developed capital market.The opening up of emerging capital markets has brought huge economic benefits to developed countries and provided sufficient funds for their own economic development.However,for the regulatory system is not perfect,the political and economic system does not match the emerging capital market,the opening of capital market did not achieve the expected economic development,but was hit by the financial crisis and economic crisis,which brought devastating impact to the emerging capital market countries and regions.Therefore,the benefits and risks of the opening of capital market have become a question worth exploring.China's capital market started in the 1990 s,under the trend of globalization of asset allocation and internationalization of RMB,the capital market,after 30 years of development,has experienced the opening process of the B share market,overseas listing,introducing qualified foreign institutional investors,Shanghai and Shenzhen-Hong Kong Stock Connect.In response to the new opening-up policy proposed by President Xi Jinping at the Boao Forum for Asia Annual Conference in 2018,on June 13,2019,the China Securities Regulatory Commission(CSRC)announced nine policy measures to further expand the opening-up of the capital market.Capital market is one of the key areas in China's opening-up.It can not only enable emerging economies to allocate resources on a global scale,but also satisfy the desire of developed foreign economies to share the benefits of emerging capital market.The 19 th National Congress of the Communist Party of China further proposed that the development of the real economy will be the focus of economic development in the future,and emphasized that the direction of financial system reform is to improve the ability of finance to serve the real economy.Therefore,the impact of the opening of capital market on the development of real economy and how to reduce or avoid its negative impact are problems that scholars at home and abroad cannot avoid and are worth studying.The cost of equity capital is an important standard to measure the development level of capital market and the efficiency of resource allocation.It is a basic index for enterprises to select and evaluate investment projects and determine financing methods.It is also a key parameter in the evaluation of enterprise equity value.Investors ask for the corresponding rate of return of capital to the enterprise on the basis of the risk that the investment bears,so the cost of equity capital as a financial element can indirectly reflect the level of risk,information transparency,management of the enterprise.Therefore,how to reduce the cost of equity capital has become a classic problem that domestic and foreign scholars have been exploring.Studying the relationship between the opening of capital market and the cost of equity capital has important theoretical and practical significance for the development of real economy.The Shanghai-Hong Kong Stock Connect was launched on November 17,2014,pushing the opening of China's capital market to a new height.Since the announcement of Shanghai-Hong Kong Stock Connect,investors of both sides have been expecting Shenzhen-Hong Kong Stock Connect,and the successful experience of Shanghai-Hong Kong Stock Connect can be copied to Shenzhen-Hong Kong Stock Connect.Therefore,Shenzhen-Hong Kong Stock Connect was launched on December 5,2016,deepening the connectivity mechanism between the mainland and Hong Kong.Capital market opening introduced many foreign institutional investors to participate in market transactions,and information is the capital markets to carry out the important basis of foreign institutional investor market trading behavior,Capital market opening may lead to the change of enterprise information transparency by introducing foreign institutional investors,and the systematic risk and non-systematic risk of the enterprise will change accordingly,thus affecting the cost of equity capital of the enterprise.Based on the natural experiments of the Shanghai and Shenzhen-Hong Kong Stock Connect,this research takes A-share listed companies in Shanghai and Shenzhen stock markets from 2010 to 2018 as research samples to comprehensively analyze and test the relationship between capital market opening and the cost of equity capital of the enterprise.The empirical research conclusions are as follows:1.Shanghai and Shenzhen-Hong Kong Stock Connect will help reduce the cost of equity capital for enterprises.After conducting parallel trend test,placebo test,separate Shanghai-Hong Kong Stock Connect sample,changing PSM method,and changing proxy variables of cost of equity capital,a series of robustness tests showed no change in the conclusion.2.Shanghai and Shenzhen-Hong Kong Stock Connect will bring more Hong Kong institutional investors.The effect of capital market opening on reducing the cost of equity capital is more significant in companies with low shareholding by Hong Kong institutional investors.capital market opening has brought more analyst attention.The effect of capital market opening on reducing the cost of equity capital is more pronounced among companies that have received less attention from analysts.capital market opening have reduced corporate risks.Among enterprises with high risk,the effect of capital market opening on reducing the cost of equity capital is more significant.After changing PSM method,and changing proxy variables of cost of equity capital,a series of robustness tests showed no change in the conclusion.3.Among private enterprises,Shanghai and Shenzhen-Hong Kong Stock Connect have a more significant effect on reducing the cost of equity capital.Among non-politically connected enterprises,the effect of capital market opening on reducing the cost of equity capital is more significant.Among enterprises with low social trust,the effect of capital market opening on reducing the cost of equity capital is more significant.For enterprises with small competition in product market,the effect of capital market opening on reducing the cost of equity capital is more significant.After changing PSM method,and changing proxy variables of cost of equity capital,a series of robustness tests showed no change in the conclusion.In addition,considering that the Shanghai and Shenzhen-Hong Kong Stock Connect are two-way opening-up policies,the empirical research finds that Shanghai and Shenzhen-Hong Kong Stock Connect cannot have a significant impact on the cost of equity capital of Hong Kong-listed enterprises by taking the companies listed on the Stock Exchange of Hong Kong,China from 2010 to 2018 as the research samples.After changing PSM method,and changing proxy variables of cost of equity capital,a series of robustness tests showed no change in the conclusion.Possible contributions of this paper are mainly reflected in the following aspects:First,this research enriches the relevant literature on the affecting factors of the cost of equity capital.Existing researches mainly study the affecting factors of equity capital cost from the angles of institutional environment,macro economy,corporate characteristics,governance mechanism,information disclosure.There is no research on the cost of equity capital from the angle of capital market opening.This research provides a new angle for the affecting factors of the cost of equity capital.Second,this study expands the research on the economic consequences of capital market opening from the angle of enterprise equity capital cost.Previous studies have shown that capital market opening has an impact on financial market risk,economic growth,stock liquidity,total factor productivity,enterprise investment,quality of information disclosure,corporate governance and other aspects,but the research conclusions are inconsistent.From the angle of the cost of equity capital,this research discusses the implementation effect of capital market opening,enriches the research on the economic consequences of capital market opening,and provides empirical experience from emerging capital markets on the impact consequences of capital market opening on the real economy.Third,the propensity score matching method is used to alleviate the non-random problem that may exist in the target companies of capital market opening.In addition,the natural experiment of capital market opening has effectively alleviated the endogenous problem and provided a relatively exogenous scenario for identifying capital market opening.The open shares are only part of the A-share companies listed on the Shanghai and Shenzhen stock exchanges,this research for us to provide natural control group and experimental group,and the starting point of capital market opening is different,so we construct DID model of policy implementation at different points,and through the parallel trend test,meet the applicable condition of DID model,alleviate the capital market opening and the cost of equity capital between causal endogeneity problem.Fourth,capital market opening on the mainland capital market,while little attention is paid to the impact on Hong Kong capital market.This research is the first to compare and analyze the difference of the impact of capital market opening on the cost of equity capital of listed companies in Hong Kong capital market and mainland capital market.Through the research on the impact of the cost of equity capital of Hong Kong stocks,expand the research on the effect of capital market opening in different regions.The practical significance of this research mainly includes the following aspects:First,for the regulators,this research provides a decision-making basis and reference for the capital market regulatory authorities to formulate and improve the capital market opening policy.Research conclusion of this paper suggests that the opening of capital market improves the level of corporate governance,information transparency and reduces enterprise risks,and can obtain a lower cost of equity capital,which indicates that the capital market opening policy has been actively responded by investors.It can be seen that China's regulatory authorities have made positive contribution to improve the efficiency of resource allocation by promoting the capital market opening.After that,it can be considered to continue to actively explore the mutually beneficial and win-win interconnection mechanism between China's capital market and other developed capital markets.Second,for enterprises,this research reveals the relationship between capital market opening,institutional investors shareholding,analysts attention,enterprise risk and the cost of equity capital,which not only helps enterprises to fully understand the economic consequences of capital market opening,but also provides a new idea for enterprises to manage risk and optimize the financing environment.Capital market opening is an effective means for enterprises to gain the favor of investors and optimize the financing environment.Enterprises should actively seek ways to integrate into the capital market opening and promote the healthy and sustainable development of enterprises.Third,for investors,this research will help them correctly understand the relationship between capital market opening and the cost of equity capital,and avoid investment risks.The research conclusion finds that capital market opening is an important factor affecting corporate governance,information transparency and enterprise risk,so investors should pay attention to the opening situation of enterprises in the capital market when making investment decisions to increase investment returns.Fourth,for other emerging capital market countries,it can provide other emerging capital market countries with a capital market opening model for reference.Through this research,the capital market opening strategy via the Shanghai and Shenzhen-Hong Kong Stock Connect can effectively reduce the cost of equity capital,therefore,in our country of economic transition,due to economic downward pressure environment,should be to continue a policy of gradual opening.After the Shanghai and Shenzhen-Hong Kong Stock Connect,the Shanghai-London Stock Connect can be steadily promoted,which provides a capital market opening model for other emerging capital market countries to learn from.