Working Paper: CEPR ID: DP18267
Authors: Juan Cortina Lorente; Maria Soledad Martinez Pera; Sergio Schmukler; Jasmine Xiao
Abstract: The internationalization of China’s equity markets started in the early 2000s but accelerated after 2012, when Chinese firms’ shares listed in Shanghai and Shenzhen gradually became available to international investors. This paper documents the effects of the post-2012 internationalization events by comparing the evolution of equity financing and investment activities for (i) domestic listed firms relative to firms that already had access to international investors and (ii) domestic listed firms that were directly connected to international markets relative to those that were not. The paper shows significant increases in financial and investment activities for domestic listed firms and connected firms, with sizable aggregate effects. The evidence also suggests that the rise in firms’ equity issuances was primarily and initially financed by domestic investors. Foreign ownership of Chinese firms increased once the locally issued shares became part of the Morgan Stanley Capital International (MSCI) Emerging Markets Index in 2018.
Keywords: equity financing; equity issuance; equity market liberalization; firm investment; foreign investors; stock connect
JEL Codes: F33; G00; G01; G15; G21; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| MSCI incorporation process (G34) | rise in foreign equity inflows (F21) |
| Internationalization events (F53) | equity issuance (G24) |
| Internationalization events (F53) | capital expenditures (G31) |
| Internationalization events (F53) | R&D expenditures (O32) |
| Rise in equity issuance (G24) | increase in capital expenditures (G31) |
| Rise in equity issuance (G24) | increase in R&D expenditures (O39) |