Performance Incentive and Negative Selection of SH-HK Stock Connect—Relation Between High-quality Growth and Capital Market Reform Path
- YU Bo, WU Hanhong
- Tianjin University of Finance and Economics, 300222.
We examine whether Shanghai-HK Connect has growth effect and governance effect on the operating performance of constituent stocks and whether “negative selection” exists in it. Using a series of methods, such as the regression adjustment method, inverse-probability-weighted method, endogenous treatment regression method and heterogeneous treatment effect, we find that: (1) Shanghai-HK Connect spurs the growth of operating performance of constituent-stock firms; (2) Shareholding from Shanghai-HK Connect spurs corporate performance, which proves the existence of the governance effect; (3) Potential loss of benefits also exists. Firms that are less likely to benefit from the policy are more likely to be included in the constituent stock basket and as a result, potential benefit from Shanghai-HK Connect is ruined. In other words, the “mechanism” of stocks being selected into constituent stock basket of capital market liberalization policy leads to benefit loss caused by “negative selection”. Finally, we give suggestions on the reform of capital market liberalization in two dimensions. We propose that limitation of trading amount should be loosened and more stocks should be included in the constituent stock basket at proper time, so as to improve the level and quality of corporate growth.
JEL：G32, G38, M41
- SH-HK Stock Connect, Performance Incentive, Governance Effect, Negative Selection, Capital Market Reform Path