Abstract
This paper examines the effect of capital market liberalization on firms’ OFDI performance. Using the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect as a quasi-natural experiment, we find that capital market liberalization significantly promotes firms’ OFDI both in probability and scale. Three plausible mechanisms are increasing TFP, easing financing constraints, and improving information disclosure quality. Furthermore, the positive effect is more prominent for international firms with overseas businesses, as well as for labor-intensive firms. Overall, our study reveals the real effects of capital market liberalization on OFDI, which has meaningful implications for emerging economies.
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