Capital-Market Liberalization and Controlling Shareholders' Tunneling-Experimental Research in the Context of "Mainland China-Hong Kong Stock Connect"

Foreign investors attracted by capital-market liberalization may either inhibit controlling shareholdersModified Letter Turned Comma tunneling due to the influence of 'long-term value investmentModified Letter Turned Comma or exacerbate it due to the effect of 'short-term price speculation.Modified Letter Turned Comma Therefore, it is unclear whether and how capital-market liberalization will eventually influence controlling shareholdersModified Letter Turned Comma tunneling. We take the implementation of Shanghai-Hong Kong Stock Connect (SHHKSC) and Shenzhen-Hong Kong Stock Connect (SZHKSC) in ChinaModified Letter Turned Commas capital market as a quasi-natural experiment and use a difference-in-differences (DID) model to identify the causal effect of capital-market liberalization on controlling shareholdersModified Letter Turned Comma tunneling. The results show that capital-market liberalization significantly reduces controlling shareholdersModified Letter Turned Comma tunneling. Improving the quality of information disclosure and corporate governance as the predominant channels that allow capital-market liberalization to reduce controlling shareholdersModified Letter Turned Comma tunneling. Further analysis shows that the effect is more pronounced when companies are private, when the level of external marketization is low and when product market competition is weak. This study enriches and supplements the literature that the impact of capital-market liberalization on the real economy and provides policy insights. Regulators should improve the supervision of information disclosure and corporate governance to decrease controlling shareholdersModified Letter Turned Comma tunneling. (Jel codes:D82;G34;G38)