Capital Market Liberalization and Bank Credit Decisions: A Quasi-Natural Experiment Based on the “Mainland-Hong Kong Stock Connect”

Abstract Whether capital market liberalization generates spillover effects on bank credit decisions is an important and intriguing topic. This paper uses the “Mainland-Hong Kong Stock Connect” as a quasi-natural experiment, with A-share listed companies from 2013 to 2022 as samples, to construct a multi-period difference-in-differences (DID) model, studying the impact of capital market liberalization on bank credit decisions from the perspective of banks. The study finds that, following the implementation of the “Mainland-Hong Kong Stock Connect” trading system, banks have reduced loan interest rates and relaxed collateral requirements. Heterogeneity analysis indicates that the impact of capital market liberalization on bank credit decisions is mainly evident in non-state-owned enterprises, firms operating in poorer institutional environments, and firms facing higher product market competition. Mediation mechanism tests reveal that enhancing corporate information transparency and reducing credit risk are two crucial pathways through which capital market liberalization influences bank credit decisions. Theoretically, the research not only enriches the literature on the economic effects of capital market liberalization but also contributes to the literature on factors influencing bank credit decisions. Practically, the research findings not only offer new insights for optimizing the allocation of bank credit resources but also provide important inspiration for the Chinese government’s continued implementation of strategies for opening up the capital market.