Stock Market Liberalization and Firm-level Stock Price Crash Risk – Evidence from 'Shanghai-Hong Kong Stock Connect' Scheme

58 Pages Posted: 19 Nov 2019

See all articles by Kai Zhong

Kai Zhong

University of International Business and Economics (UIBE)

Changling Sun

Renmin University of China

Huacheng Wang

Renmin University of China

Steven Wei

Hong Kong Polytechnic University

Date Written: October 1, 2019

Abstract

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

Suggested Citation

Zhong, Kai and Sun, Changling and Wang, Huacheng and Wei, Steven, Stock Market Liberalization and Firm-level Stock Price Crash Risk – Evidence from 'Shanghai-Hong Kong Stock Connect' Scheme (October 1, 2019). Available at SSRN: https://ssrn.com/abstract=3483638 or http://dx.doi.org/10.2139/ssrn.3483638

Kai Zhong

University of International Business and Economics (UIBE) ( email )

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

Changling Sun

Renmin University of China ( email )

Room B906
Xianjin Building
Beijing, Beijing 100872
China

Huacheng Wang

Renmin University of China ( email )

Room B906
Xianjin Building
Beijing, Beijing 100872
China

Steven Wei (Contact Author)

Hong Kong Polytechnic University ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China
27667056 (Phone)

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