The internationalization of capital market and corporate innovation capabilities: A quasi-natural experiment on the inclusion of China's A-shares in the MSCI index

Yafei Tan and Zhaohui Zhu

International Review of Economics & Finance, 2024, vol. 93, issue PA, 1021-1038

Abstract: The capital market serves to link capital with the real economy. This study examines the long-term effects of capital market internationalization from the perspective of real economy corporate innovation capabilities. To do so, a quasi-natural experiment is conducted in which China's A-shares are included in the MSCI index to construct a time-varying PSM-DID model and study the impact of capital market internationalization on corporate innovation inputs and outputs. The results show that bringing China's A-shares in the MSCI index significantly improves corporate innovation capability through signaling and supervisory effects. Specifically, the internationalization of the capital market reduces corporate financing costs, increases corporate risk-taking, improves long-term institutional investors' shareholding, and alleviates managerial myopia. Furthermore, these effects were found to be more significant for both high-management shareholding enterprises and low-industry competition enterprises. The research conclusions support the proposition to further unleash corporate innovation, and as such, they have important implications for promoting the internationalization of the capital market.

Keywords: A-shares in the MSCI index; Internationalization of capital market; Corporate innovation capabilities (search for similar items in EconPapers)
JEL-codes: E22 G32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:93:y:2024:i:pa:p:1021-1038

DOI: 10.1016/j.iref.2024.03.060

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