Stock Market Liberalization and Firm-level Stock Price Crash Risk – Evidence from 'Shanghai-Hong Kong Stock Connect' Scheme
58 Pages Posted: 19 Nov 2019
Date Written: October 1, 2019
This paper examines how the “Shanghai-Hong Kong Stock Connect” scheme affects firm-level stock price crash risk in the A-share market of Shanghai. Using a difference-in-differences approach, we find that crash risk of connected firms is lower than that of non-connected ones after implementation of the scheme. Further analyses show that the crash risk reduction effect is more pronounced for firms with poor information environment or weak corporate governance. This information view of stock market liberalization is also evidenced by higher demand and supply for firm-level information. This implies that stock market liberalization is beneficial to emerging economies.
Keywords: Stock market liberalization; Stock connect scheme; Stock price crash risk; Information quality; Corporate governance
JEL Classification: G12, G14
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