Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/240352 
Year of Publication: 
2020
Series/Report no.: 
BOFIT Discussion Papers No. 1/2020
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
We document the effect on Chinese firms of the Shanghai (Shenzhen)-Hong Kong Stock Connect. The Connect was an important capital account liberalization introduced in the mid-2010s. It created a channel for cross-border equity investments into a selected set of Chinese stocks while China's overall capital controls policy remained in place. Using a difference-in-difference approach, and with careful attention to sample selection issues, we find that mainland Chinese firm-level investment is negatively affected by contractionary U.S. monetary policy shocks and that firms in the Connect are more adversely affected than those outside of it. These effects are stronger for firms whose stock return has a higher covariance with the world market return and for firms relying more on external financing. We also find that firms in the Connect enjoy lower financing costs, invest more, and have higher profitability than unconnected firms. We discuss the implications of our results for the debate on capital controls and independence of Chinese monetary policy.
Subjects: 
Capital Controls
Global Financial Cycle
Foreign Spillovers
FOMC Shocks
China Connect
Corporate Investment
JEL: 
F38
E40
E52
G15
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-312-6
Document Type: 
Working Paper

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