Capital market liberalization and corporate debt maturity structure: evidence from the Shanghai-Shenzhen-Hong Kong Stock connect

Abstract

Purpose - This paper takes the Shanghai-Shenzhen-Hong Kong Stock Connect as a quasi-natural experiment and investigates the impact of capital market liberalization on the corporate debt maturity structure. It also aims to provide some policy implications for corporate debt financing and further liberalization of the capital market in China. 

Design/methodology/approach - Employing the exogenous event of Shanghai-Shenzhen-Hong Kong Stock Connect and using the data of Chinese A-share firms from 2010 to 2020, this study constructs a difference-indifferences model to examine the relationship between capital market liberalization and corporate debt maturity structure. To validate the results, this study performed several robustness tests, including the parallel test, the placebo test, the Heckman two-stage regression and the propensity score matching.

Findings - This paper finds that capital market liberalization has significantly increased the proportion of long-term debt of target firms. Further analyses suggest that the impact of capital market liberalization on the debt maturity structure is more pronounced for firms with lower management ownership and non-Big 4 audit. Channel tests show that capital market liberalization improves firms' information environment and curbs self-interested management behavior. 

Originality/value - This research provides empirical evidence for the consequences of capital market liberalization and enriches the literature on the determinants of corporate debt maturity structure. Further this study makes a reference for regulators and financial institutions to improve corporate financing through the governance role of capital market liberalization.

Keywords: Capital market liberalization, Information environment, Self-interested management behavior, Corporate debt maturity structure

JEL Classification: G32, D53