Capital market openness and bank credit risk: Evidence from listed commercial banks

Abstract

This paper utilizes the quasi-natural experiment of the "Shanghai-Shenzhen-Hong Kong Stock Connect" to examine the impact of capital market openness on bank credit risk. A multi-period difference-in-difference model is employed to explore the effects and underlying mechanisms based on data from 2007 to 2022. The findings indicate that capital market openness leads to a notable rise in the banks' credit risk, mainly due to the substantial enhancement in liquidity. Furthermore, the impact of capital market openness is more pronounced on banks with greater market strength and a higher level of digital transformation, resulting in a more substantial positive effect.