Does stock market liberalization increase company TFP? Evidence from the Shanghai-Shenzhen-Hong Kong stock connect program in China

This paper studies the impact of the liberalization of the Chinese stock market on company total factor productivity (TFP) and its mechanism of action by using the "Shanghai-Hong Kong Stock Connect" program. The benchmark regression results based on the multi-period difference-indifference (DID) model show that the implementation of the "Shanghai-Hong Kong Stock Connect" program significantly increases the TFP of target companies, a conclusion that is still valid after a series of robustness tests. Further mechanism analyses shows that the program increases company TFP by both increasing a company's stock liquidity and information transparency and reducing the degree of financing constraints.