The Impact Of Capital Market Liberalization On Stock Price Crash

Shanghai-Hong Kong Stock Connect is an important policy for China to further promote the capital market liberalization.Shanghai-Hong Kong Stock Connect has relaxed the access conditions for foreign investors and promoted the investment of cross-border assets in the capital market of Chinese mainland.The connectivity mechanism led by Shanghai-Hong Kong Stock Connect has gradually become one of the main trading systems for foreign investors to participate in the capital market in Chinese mainland.Under the trend of continuous expansion of cross-border transaction scale,it is of great significance to study the impact of capital market liberalization on the stock market crash to prevent financial risks and deepen the interconnection trading system.Using Shanghai-Hong Kong Stock Connect as a quasi-natural experiment,this article selects panel data of A-share listed companies from 2011 to 2021 and uses a time-varying Differences-in-Differences model to study the impact of capital market liberalization on stock price crash risk.The research discovered a significant decrease in the stock price crash risk for companies once they were included in the qualified stock list of Shanghai-Hong Kong Stock Connect.This suggests that the capital market liberalization has the potential to mitigate the risk of stock price crashes.This conclusion still holds after robustness tests such as sample selection bias,exclusion of randomness,and sample replacement.The mechanism study found that Shanghai-Hong Kong Stock Connect reduces the stock price crash risk by reducing their earnings management.The heterogeneity test results show that the inhibitory effect of the Shanghai-Hong Kong Stock Connect on stock price crash risk only works in non-state-owned enterprises and companies with low equity concentration.The study not only enriches the relevant literature on capital market liberalization and stock price crash risk,but also expands the mechanism of action between the implementation of Shanghai-Hong Kong Stock Connect and stock price crash risk.Under the trend of continuous deepening of the connectivity mechanism,it provides theoretical guidance and practical suggestions for the government and enterprises to better deal with the challenges brought about by the capital market liberalization.