Stock market liberalization and corporate risk-taking: evidence from Mainland China–Hong Kong Stock Connect

Maoguo Wu (), Zhengyang Yu, Yuhan Mao, Ziqi Zhai, Ruohan Liu and Yuwei Wang
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Maoguo Wu: Shanghai University
Zhengyang Yu: Shanghai University
Yuhan Mao: Shanghai University
Ziqi Zhai: University of Technology Sydney
Ruohan Liu: Shanghai University
Yuwei Wang: East China Normal University

Eurasian Business Review, 2025, vol. 15, issue 1, No 9, 273-301

Abstract: Abstract Using Mainland China–Hong Kong Stock Connect (MCHKSC) as a quasi-natural experiment, this study investigates the effect of stock market liberalization on corporate risk-taking. Utilizing a sample of Chinese A-share listed firms from 2009 to 2023 and a difference-in-differences framework, we demonstrate that MCHKSC has significantly decreased corporate risk-taking for eligible firms. Tests on underlying mechanisms show that MCHKSC has increased institutional ownership and decreased large shareholders’ power. Heterogeneity tests indicate that the policy effect is more pronounced in firms audited by non-Big-Four audit firms, small firms, and firms with overconfident managers. Further tests on economic consequences find that MCHKSC has increased interest coverage and decreased stock price synchronicity by decreasing corporate risk-taking. This study provides empirical evidence and practical insights for the orderly promotion of stock market liberalization.

Keywords: Stock market liberalization; Corporate risk-taking; Mainland China–Hong Kong Stock Connect; Institutional ownership; Large shareholders’ power (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s40821-025-00291-0

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