Stock market liberalization and firm litigation risk——A quasi-natural experiment based on the Shanghai-Hong Kong Stock Connect policy

Zhen Huang and Weiwei Gao

Applied Economics, 2021, vol. 53, issue 48, 5619-5642

Abstract: Taking the openness of the Shanghai-Hong Kong Stock Connect policy as an exogenous shock, this paper examines how the stock market liberalization affects litigation risks of underlying stock firms and its influencing mechanisms. We use a difference-in-differences (DID) approach to analyse the sample of A-share firms listed on the Shanghai Stock Exchange, and find that the stock market liberalization can better curb litigation risk of the underlying stock firms (i.e. the firms listed on the Shanghai Stock Exchange that can also be traded in the Hong Kong Stock Exchange) than that of the non-underlying stock firms. Further, we provide evidence that the corporate governance mechanism rather than information transmission is the main channel through which stock market liberalization reduces litigation risk of the underlying stock firms. This paper emphasizes the unique role and spillover effects of the stock market liberalization, contributing to the literature on law and finance and the literature on the stock market liberalization.

Date: 2021
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DOI: 10.1080/00036846.2021.1927963

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