Stock market liberalization and earnings management: Evidence from the China-Hong Kong Stock Connects

In this paper, we use the China-Hong Kong Stock Connects (the connects) as exogenous shocks of the liberalization of Chinese stock markets to examine the effects of the connects on firm earnings management. We find that the stock market liberalization of capital market significantly reduces firms' earnings management. The decrease of asymmetric information is the underlying driving force behind our findings. Overall, this study provides policy implication that the stock market liberalization reduces the earnings management.

Automated summary

In this paper, the authors use the China-Hong Kong Stock Connects as a natural experiment to examine the impact of stock market liberalization on firm earnings management. Their findings suggest that the liberalization significantly reduces earnings management due to a decrease in asymmetric information. These results have important policy implications for regulators and provide evidence for the benefits of market liberalization.