Financial openness and profitability premium: Causal evidence from the Shanghai‐Hong Kong Stock Connect. (23rd January 2023)

• Record Type: Journal Article
• Authors: Jiang, Fuwei; Jin, Fujing; Zhang, Kejia
• Is Part Of: Accounting and finance. Volume 63:Number 1(2023)
• Page Start: 451
• Page End: 483
• Publication Date: 2023-01-23
• Subjects: financial openness -- mispricing -- profitability premium -- Shanghai‐Hong Kong Stock Connect -- value investment; Accounting -- Periodicals; Finance -- Periodicals; 657.05
• DOI: 10.1111/acfi.13049
• Languages: English
• ISSNs: 0810-5391

Abstract

Abstract: This study explores the impact of capital market openness on the profitability premium by using the Shanghai‐Hong Kong Stock Connect (SHKSC) programme as an exogenous shock. The empirical results show that (1) we can basically rule out the mispricing mechanism driving the significant profitability premium in China; (2) following SHKSC, the expected stock returns increase more across less profitable firms, and the less profitable firms have more increases in illiquidity, capital structure and information disclosure quality; and (3) the results are still robust after using propensity score matching analysis, deleting the highly volatile periods and conducting a firm‐level test with the triple‐differencing design.