Financial openness and capital market stability: a perspective from the expansion of the Shenzhen-Hong Kong Stock Connect

This study examines the impact and underlying mechanisms of the Shenzhen-Hong Kong Stock Connect expansion, a quasi-natural experiment in financial openness, on capital market stability. By utilizing panel data from A-share listed companies in Shenzhen from January 2022 to June 2024 and employing a difference-in-differences (DID) model, the research reveals that, first, the expansion of the Shenzhen-Hong Kong Stock Connect effectively mitigates stock price crash risk among small and medium-sized enterprises. Second, the results of the mechanism analysis indicate that this expansion enhances information transparency among small and medium-sized enterprises, strengthening institutional investor monitoring. An optimized information environment contributes to a reduction in future crash risk. Third, the results of the heterogeneity tests reveal that the risk-mitigating effects are more pronounced for non-state-owned enterprises and companies audited by non-Big Four accounting firms.