Capital market opening and commercial bank risk: Evidence from “Shanghai–Hong Kong Stock Connect”

Abstract

Based on the implementation background of the “Shanghai–Hong Kong Stock Connect” policy, this paper explores the impact of capital market opening on the commercial banks risk. The results show that the capital market opening has a positive impact on the commercial banks risk. Financial information quality and external information environment are important transmission mechanisms for the capital market opening to affect the commercial bank risk. The impact of capital market opening on the commercial bank risk is heterogeneous, and it has a stronger effect on the risk reduction of commercial banks with larger asset size and capital flow ratio. This study objectively presents the effect of the implementation of the “Shanghai–Hong Kong Stock Connect” policy, and provides empirical evidence for commercial banks to avoid the capital market risks they may face.