The dark side of stock market liberalization: Perspectives from corporate R&D activities in China

This study explores how stock market liberalization impacts corporate research and development (R&D) activities and examines the impact channels. Based on a quasi-natural experiment on the Shanghai-Hong Kong Stock Connect, we report a significantly negative relationship between stock market liberalization and R&D activities in non-state-owned enterprises (non-SOEs) using a difference-in-difference approach. For one thing, a decrease in analyst coverage will reduce the supervision of R&D activities; for another, the alleviation of financing constraints will heighten corporate financialization, resulting in a greater crowding-out effect on R&D activities. Furthermore, R&D activities in SOEs, which are guided by government policies, are not significantly affected by stock market liberalization.