The Impact Of Stock Market Opening On The Cost Of Equity Capital

In the report of the 20 th CPC National Congress,Xi Jinping,General Secretary of the CPC,put forward China’s basic national policy of adhering to opening up to the outside world,emphasizing the implementation of a mutually beneficial and win-win opening strategy to promote a high level of opening up.The Central Economic Work Conference in December 2022 further emphasized the specific direction of adhering to opening up.China has been committed to promoting the opening up of the capital market to the outside world,exploring a gradual and orderly opening path,and realizing the reform and deepening of the capital market.By conducting empirical analysis,this paper aims to uncover the effects and mechanisms of capital market liberalization on the cost of equity capital.Firstly,reviewed and commented on relevant literature,and provided clear definitions for core concepts such as capital market liberalization and cost of equity capital.We elaborated on a range of related theoretical foundations,including international capital flow theory,corporate governance theory,and information asymmetry theory.We explored the intrinsic relationship and impact mechanism between capital market liberalization and the cost of equity capital,and discussed various channels such as institutional investors,information transparency,and corporate risk.In the empirical analysis section,we selected the implementation of the " Mainland-Hong Kong Stock Connect" policy as a policy virtual variable and constructed the dependent and control variables for the cost of equity capital using financial data and analyst forecast data from A-share listed companies in the period from 2012 to 2021.We employed the two-way fixed effect difference-in-differences method to test the research hypotheses.To ensure the robustness of the empirical results,we not only considered traditional tests such as parallel trend tests,sample selection bias,adjusted cost of equity capital proxy variables,and heterogeneity analysis,but also used the latest staggered difference-in-differences method to conduct robustness checks on the benchmark measurement results.The study results indicate that there is a significant negative correlation between capital market liberalization and the cost of equity capital.Specifically,the implementation of the " Mainland-Hong Kong Stock Connect" policy has reduced the cost of equity capital for listed companies.Institutional investors,information transparency,and corporate risk are important influencing mechanisms,as the implementation of the " Mainland-Hong Kong Stock Connect" policy has led to increased participation by institutional investors,greater attention from analysts,reduced corporate risk,and ultimately a decrease in the cost of equity capital for listed companies.Moreover,the effect of the " Mainland-Hong Kong Stock Connect" policy on reducing the cost of equity capital is more pronounced in private enterprises and companies with lower equity concentration.Finally,feasible policy recommendations are proposed for regulators,companies,investors,and other emerging capital markets.