Shanghai/Shenzhen-Hong Kong Stock Connect Market Trading And Company Default Risk

An open and free capital market is the main indicator of a country's financial liberalization and the degree of capital market development.This paper takes the Shanghai/Shenzhen-Hong Kong stock market trading connect as the research context of quasi-natural experiments,and uses the difference-in-difference research model to examine the impact of the Shanghai/Shenzhen-Hong Kong stock connect market trading interconnection mechanism on the company's default risk.The research shows that after the implementation of the Shanghai/Shenzhen-Hong Kong stock market trading connect interconnection mechanism,the target company's default risk is lower than the non-target company,which means that the target company has a smaller probability of default.In addition,this paper conducts a channel test on the empirical results in the perspective of stock liquidity,then finds that the Shanghai/Shenzhen-Hong Kong stock connect market trading enhances the company's stock liquidity,so that higher liquidity can increase price efficiency or improve corporate governance which could reduce the company's default risk.What's more,this paper conducts two cross-sectional difference tests based on corporate governance efficiency and information quality.It is found that the Shanghai/Shenzhen-Hong Kong stock market trading connect interconnection mechanism has brought institutional investors to the A-share market in China.If the corporate governance efficiency is low or companies with poor information quality,these companies' default risk will be reduced more.Through the research,this paper can not only provide a new perspective on the economic consequences of the Shanghai/Shenzhen-Hong Kong stock market trading connect intercommunication mechanism,but also give policy makers the theoretical support for the next step of the capital market opening decision-making.